AUD/USD challenges a break above its 200-day moving average
If the move higher here is happening on any other period besides the final (-ish) week of the year, I'd attach more significance to the move and give it more credit.
However, with liquidity conditions hampered by holiday-thin trading, it's hard to fully buy into the technical story we're seeing above. It's yet another time that AUD/USD buyers are looking for a break of the 200-day MA (blue line) this year - will they succeed this time?
If the close rests above the 200-day MA, it will be the first such daily close above the level since March 2018. From a technical perspective, that is a massive victory for buyers but then again, it could also be a bit of a false break on thinner liquidity conditions.
The story of 2019 for AUD/USD has been rallies being capped by the 200-day MA or key trendline resistances as highlighted in chart above.
But much like the case in 2018, the fundamental driver continues to be that of yields:
With the RBA likely to be more pressured to cut rates early next year and the Fed seen on hold, it should continue to drive yield differentials in favour of the dollar further. Even more so when a February rate cut for the RBA is only 36% priced in at the moment.
It tells us that there is still room to go for the rates and currency markets to price in more pessimism in the aussie, should we see a more compelling case for the RBA to cut at their first meeting next year on 4 February.
That said, 2020 may present a bit of a curveball for the US dollar - especially if we start to see global growth stabilise a little with green shoots still emerging.
Hot money flows may start reversing back to EM and that is a strong headwind to consider against the greenback that may not necessarily be captured by yield differentials.
The above chart is also a by-product of the fact that the dollar has been the cleanest shirt among a dirty pile for quite some time now. But if markets start to find other clean shirts around the block, the dollar may not be all that attractive going into next year.
We'll see how all of that factors into the AUD/USD picture alongside the technical story next year. But for now, I'd be wary of the break higher above the 200-day MA. It's an encouraging sign for buyers but it may just be coming at the wrong time.
