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The Australian dollar shot up to 0.7834 AUDUSD following poor and disappointing US economic and inflation data released on Friday. This inflation data is likely to complicate the Fed’s path of monetary tightening and retail data suggests that Americans are pulling back their spending. The discouraging data indicated that last month was only the fifth time in seven years we have seen a drop in retail sales over consecutive months, increasing the argument that the strength of the US economy cannot withstand another IR hike in the near future.

Update: AUD/USD tops 0.79 on RBA bullishness, USD weakness

On the other side of the coin, despite dark clouds gathering in the distance, Australian and Chinese economic data have been altogether positive. This has created positive economic sentiment, bumping up the AUD/USD to highs not seen since 2015. This rise was further supported by higher commodity prices and the central bank of Canada’s move to raise rates.

While the AUD holds at 0.78, analysts are likely to be pondering how much further the AUD can climb. As Australia moves further away from its reliance on mining income, a strong Australian dollar draws energy from the rest of the economy, increasing the likelihood the RBA steps in to drive the currency down. Also, at this level, speculators might consider the currency overbought especially in the context of the weakening economic outlook.

The Australian dollar has surged to well above the historical resistance of 0.774. This author believed that the currency would fall substantially before it could seriously mount a serious push higher and therefore this recent move higher is surprising. At 0.78 the currency remains a sellable pair, but should the pair cross the final line of defense around 0.785, this would give wings to the AUD and consequently 0.81 lights up as a reasonable target. The RSI indicator signals that the pair is not yet overbought technically and so we may soon witness the historical collapse of the highly significant and stubborn area of resistance illustrated in the chart below. A sustained AUD appreciation above 0.78 will trigger multitudes of stops and alter the currency’s long-term outlook for many pundits.