Aussie May Fall to Three-Month Low, Entering Downtrend: Technical Analysis

Australia’s dollar may weaken to a three-month low against the U.S. currency as a range of technical indicators signal it is entering a declining trend, according to Mizuho Corporate Bank Ltd.

The so-called Aussie is likely to extend declines as it is close to completing a so-called “head-and-shoulders” pattern and a “dead-cross,” said Hiroyuki Tanaka, chief technical analyst at the unit of Japan’s second-largest publicly traded bank. The currency, which has twice risen above parity with the greenback in the past six weeks, may fall as low as 92 U.S. cents, he said.

“The Australian dollar couldn’t sustain parity with the greenback,” Tokyo-based Tanaka said. “The currency will peak out after completing the head-and-shoulders pattern.”

Australia’s currency traded at 97.49 U.S. cents as of 1:02 p.m. in Tokyo, after rising to $1.0183 on Nov. 5, the strongest since exchange controls were scrapped in 1983.

The currency will form a head-and-shoulders pattern if it falls below its Oct. 27 low of 96.52 U.S. cents, indicating it has switched to declining trend, Tanaka said.

A head-and-shoulders is formed when a currency makes three consecutive peaks on a chart, with the middle being the highest.

Australia’s dollar is also close to forming a dead cross, as its five-day moving average declines below its 55-day line, also a bearish signal, Tanaka said.

Tanaka said the Aussie’s near-term target is the lower end of a so-called ichimoku cloud at 93.87 U.S. cents, and if it declines below that the next target would be around 92 cents. The last time it traded below 92 cents was Sept. 9.

Ichimoku charts are used to predict a currency’s direction by analyzing the midpoints of historical highs and lows. The cloud refers to the area between the first and second leading span lines on the chart and is used to show an area where buy orders may be clustered.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

To contact the reporter on this story: Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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