The best performing currency this week was the Australian dollar, which extended higher for the 5th consecutive trading day against the u.s. dollar. In fact so far this month, there's only been 4 down days for AUD/USD. This move took the pair to fresh 2-month highs well above 77 cents. Considering that Australian data has been mixed, U.S. dollar weakness, higher commodity prices and a renewed demand for risk currencies are the primary catalysts for AUD/USD's rise. With no major Australian economic reports scheduled for release this week, these are the same factors that would fuel a continued rally in the currency. In the near term, we think some year end profit taking is warranted particularly after such a strong move in AUD/USD – its up nearly 4 cents in 3 weeks.
On a technical basis, the latest rally stopped right at the 100-day SMA, which is a possible point of retracement. If it makes it past that point, then the next stop should be .7815, the 50% Fibonacci retracement of the September to December decline and then 79 cents. If AUD/USD rejects the 100-day SMA and starts trending lower from here, 77 cents is the main level of support.
