The high-flying Australian dollar has been looking a little sick recently, falling to the lowest level since January 30 on Wednesday. And that weakness has continued in early Asian trade on Thursday.
To technical analysts at Citibank, there’s likely to be further falls to come.
They’ve initiated a short AUD/USD trade overnight, targeting a move back to .7150 with a stop-loss of .7705. It says that with the Aussie still near the highs of this year, the risk-reward of the trade “looks good to the downside.
“[The] price action has been very similar to April and November of last year where once we broke through this area of support from 0.7600-0.7500 we accelerated lower,” it says.
“In addition, there is also an evening star-esque pattern that is developing (circled in the chart below) which suggests the downtrend is likely to continue from here.”
Along with technicals, it says that “US yields look poised to make higher highs in the trend as we are now through a number of key levels across the US yield curve”, suggesting that “widening yield differentials should be supportive of AUD/USD downside”.
“With yields rising and the USD continuing to rally, commodities look susceptible to a correction.”
The AUD/USD currently trades at .7519.