The Australian dollar will strengthen versus its U.S. counterpart after forming an inverted head-and-shoulders chart pattern, according to Bank of America Corp., citing technical indicators.
The Aussie may rise to 94.07 U.S. cents, approaching its strongest level since June 19 and a “pretty sizable pivot” established in November 2009, before resuming its longer trend of decline, MacNeil Curry, head of foreign-exchange and interest-rates technical strategy in New York at Bank of America Merrill Lynch, said in a telephone interview. He said he set a long-term target for the currency of 80.66 U.S. cents, the lowest since July 2009.
“The Aussie should continue on its climb against most currency pairs,” Curry said. “Once it’s completed, we should see a much larger bear trend.”
A head-and-shoulders pattern comprises three consecutive peaks on a chart, with the middle being the highest. A breach of a neckline, drawn across the base of the three peaks, is seen to indicate that a trend is about to reverse.
The Aussie gained 1.2 percent to 91.74 U.S. cents in New York, after rising to the strongest since Aug. 19. It also broke through its 50-day moving average.
The currency has fallen 8.4 percent this year against major peers, the second-worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.