In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, extra gains in AUD/USD area likely on a breakout of the 0.7135 level in the near term. We highlighted yesterday that ‘slowing upward momentum coupled with overbought conditions suggest that AUD is unlikely to advance further’ and we expected AUD to ‘trade between 0.7040 and 0.7115’. AUD subsequently traded sideways but within a narrower range than expected (0.7057/0.7115).
The underlying tone has improved slightly and we see chance for AUD to test the major resistance at 0.7135 before the risk of a pullback would increase. The next resistance at 0.7165 is not expected to come into the picture. Support is at 0.7075 followed by 0.7050.
Two days ago (23 May, spot at 0.7070), we highlighted that upward momentum is beginning to build and the risk is tilted to the upside towards 0.7135. We indicated that AUD has to close above 0.7135 before a sustained advance is likely. Since then, AUD has not been able to make much headway on the upside. However, there is no change in our view for now and only a breach of 0.7025 ( ‘strong support’ level was at 0.7000 yesterday) would indicate that the build-up upward pressure has eased.
