AUD/USD rises on speculation greenback’s recent advance is excessive

Australian dollar gained ground against its US rival on trading Friday amid speculation that greenbacks recent gains against major peers were excessive, while a technical indicator signaled US dollar was overbought against the Japanese yen.

AUD/USD touched a session high at 0.8929 at 7:30 GMT, after which consolidation followed at 0.8924, gaining 0.31% for the day. Support was likely to be received at December 26th low, 0.8876, while resistance was to be met at December 24th high, 0.8934.

The Federal Reserve Bank said on December 18th that it intends to reduce its monthly bond purchases in January to $75 billion from $85 billion, while also reinforcing its position that the benchmark interest rate will remain low for an extended period of time. Bank’s policymakers will probably trim asset purchases in increments of $10 billion over the next seven meetings before ending the program in December 2014.

“The Fed did decide to taper, but the amount was minimal and we have yet to see what the policy outlook will be going forward,” said Marito Ueda, a senior managing director at currency-margin company FX Prime Corp. in Tokyo, cited by Bloomberg. “Some bets on dollar gains are being unwound into year-end. The dollar is being sold across the board.”

Yesterday a report by the Department of Labor said that the number of initial jobless claims in the United States dropped for the first time in three weeks, which came as new evidence that labor market in the largest economy worldwide was recovering. The number of claims decreased by 42 000 to reach the seasonally adjusted 338 000 during the week ending on December 21st. Experts had expected that the number of claims will fall less, to 346 000. Initial jobless claims in the preceding week have been revised up to 380 000.

According to a governmental source, last weeks results were not influenced by seasonal factors. However, as the number of initial jobless claims tends to be highly volatile during the last month of the year, some economists warned that it was not appropriate to take into account labor market data during the holiday season.

The average number of claims during the past four weeks, an indicator considered as lacking seasonal effects, increased by 4 250 last week to reach 348 000, which spoke of a moderate pace of recovery in labor market conditions.

In addition, it became clear that retail sales in the United States rose 3.5% during the holiday shopping season. According to data by MasterCard Advisors SpendingPulse, these results have probably been supported by large discounts at malls and strong sales of kidsclothing and jewelry. Sales of luxury goods, electronics and clothing increased 2.3% during the period between November 1st and December 24th compared to the same period last year, according to a New York-based company, “Purchase”.

Meanwhile, USD/JPY’s 14-day relative strength index (RSI) exceeded 70 on Thursday, a level which signals an asset’s price has climbed too rapidly and may be set for a reversal.

Elsewhere, the Aussie was lower against the euro, with EUR/AUD cross advancing 0.49% on a daily basis to trade at 1.5470 at 9:47 GMT. AUD/NZD pair was little changed, up 0.06% to trade at 1.0905 at 9:49 GMT.