Aussie's Rally Falters as 1 1/2-Year-Old Resistance Point Looms

  • Australian dollar had neared breach of 200-day moving average
  • Real, rand also climbed as currency volatility declined

The Australian dollar retreated after its biggest daily advance in more than two weeks took it close to a resistance level it hasn’t breached since 2014.

The Aussie is within 1 percent of its 200-day moving average, which it last traded above in September 2014, as rallies in equities and commodities boosted demand for the nation’s assets. The currency on Monday joined a rally in higher-yielding, resource-linked peers led by Brazil’s real and South Africa’s rand, while the pound and euro were the worst-performing majors amid concerns Britain may vote in June to leave the European Union. The JPMorgan Chase & Co. gauge of global currency volatility has dropped in three of the past four sessions.

“At the moment when risk appetite and sentiment is increasing and volatility is subsiding, being long carry structures and yield is really the way to go,” said Chris Weston, chief markets strategist in Melbourne at IG Ltd. In Australia, “you’ve still got a compelling yield in an environment now where volatility is falling away and the Aussie dollar is going to do very nicely.”

Australia’s dollar slipped 0.2 percent to 72.13 U.S. cents as of 10:52 a.m. in Tokyo after climbing 1.1 percent on Monday, the most since Feb. 3. It’s 200-day moving average was at 72.75 cents. 

The currency’s advance raised the prospect that the rally will gain momentum, JPMorgan said in a research report. The bank said moves to the 72.45 to 72.80-cent level are of interest, a range that includes a high from early February as well as the 200-day moving average.

The Aussie has rallied this month from a nearly seven-year low reached Jan. 15 as signs the nation’s central bank will hold benchmark rates at 2 percent combined with a rally in iron ore and stabilization in equity markets to bolster demand. Expectations of price swings in the currency over three months dropped for a second day to 12.5 percent. Options are now paying a premium of 1.95 percentage points for contracts to sell the currency, over those to buy it, the least on a closing basis in two weeks.

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