AUD/USD: fragile on dollar strength, targetting 0.6828 January low

AUD/USD is open in early Asia testing the bottom of the bearish trend from the 0.7520 sell-off, with spot trading at 0.7276 and a low of 0.7270.

AUD/USD took the brunt of the dollar's strength last week with the antipodeans being the worst of the lot. The focus has been with the Fed and their recent hawkishness after the first rate hike since this time last year and the dollar has scored fresh highs in an extension of the Trump rally.

Elsewhere, the Australian federal government’s mid-year fiscal update is expected to show a deteriorating deficit as broad economic weakness offsets commodity price gains, explained analysts at Westpac, adding that markets will be watching for any rating agency reactions.

"Momentum is negative, thanks to the post-FOMC surge in the US dollar’s last week, with the next major multi-day target around the 0.7200 area (May low). The MYEFO today is an additional risk.

AUD/USD levels

With spot looking fragile, a break below the May low at 0.7146 opens significant downside risks.

"AUD/USD as having topped and eventually expect it to slide back to the 0.6828 January low," - argued analysts at Comerzbank.

The analysts at Westpac offered AUD/USD in a 1-3 month: 

"Below 0.7300. The US dollar has had an impressive rise since the US election and has potential to rise further during the months ahead. The Fed’s assertive tightening projections plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar. Against that coal and iron ore are likely to sustain a good portion of their dramatic rises, and economic data should improve in Q4 and Q1, but these forces are subservient to the US dollar’s trend. There’s also the issue of Australia’s AAA rating, seen at risk. (16 Dec)."

For a findamental insight for 2017, watch: