Aussie May Advance to November High on Double Bottom, CMC SaysKevin Buckland
Australia’s dollar may extend its rally to the highest level since November against the greenback, trading patterns suggest, amid speculation the Federal Reserve will move slowly in raising interest rates.
The Aussie may climb as high as its 200-day moving average at 86.20 U.S. cents if it completes a chart pattern known as a double bottom by breaking above the February high at 79.13 cents, according to Ric Spooner, chief markets strategist at CMC Markets in Sydney. The currency came within a 10th of a cent of that level Tuesday, before retreating after a manufacturing report showed an unexpected contraction in China, Australia’s biggest trading partner.
“A break above that resistance would be a sign of bullishness,” Spooner said by phone Tuesday. “We could see a bigger move in that circumstance.”
Australia’s currency has climbed 4 percent against the greenback since reaching an almost six-year low earlier this month, after the Fed cut its projections for U.S. interest rates. The Reserve Bank of Australia wants a weaker local dollar to help support growth and has repeatedly called the currency overvalued based on economic fundamentals
The double bottom is forming from successive 5 1/2-year lows reached on Feb. 3 and March 11, Spooner said.
The Aussie slipped 0.1 percent to 78.69 U.S. cents as of 7:28 a.m. in London from Monday, after being as much as 0.6 percent lower following the China data. Previous to that, it rose as high as 79.03 cents.
The preliminary estimate from HSBC Holdings Plc and Markit Economics showed their manufacturing purchasing managers’ index for China dropped to 49.2 in March from 50.7 in February. Analysts surveyed by Bloomberg News forecast a decline to 50.5. Readings below 50 indicate contraction.
The PMI “undershooting forecasts is spurring Aussie selling because of the country’s close trade correlation with China,” Yuji Saito, director of foreign exchange at Credit Agricole SA in Tokyo, said by instant message.
The slowdown in China has contributed to a more than 50 percent decline in the price of iron ore, Australia’s top export earner, over the past 12 months. More than a third of Australia’s total outbound trade goes to China.
Even with Tuesday’s slump, the Aussie is heading for a second monthly advance against the U.S. dollar. That follows a more than 5 percent tumble in January, extending a second straight year of declines.
Hedge funds and other large speculators trimmed net positions betting on Aussie declines versus the greenback by the most on record last week, according to the latest data available from the Washington-based Commodity Futures Trading Commission. They more than halved bearish wagers to a net 28,807 contracts, from an unprecedented 76,851 contracts the week before.