The Australian dollar was the worst-performing major currency over the past day. It fell 114 pips to 0.8788.

The Aussie dollar had touched above 94 cents in mid-November but soon began to struggle and has now fallen more than 400 pips in the past week.

The long-term technical picture now looks bearish.

The uptrend has been broken and how the 100-day moving average (red) has been breached.

The recent declines in AUD come after the Reserve Bank of Australia said it could introduce a pause to its interest rate hiking cycle. This shook out some of the carry trade. At the same time, there has been a rally in the U.S. dollar based on short-covering and improved expectations for rate hikes in 2010.

The technical picture for AUD/USD looks perilsome at the moment. Some oscilators are showing that the pair is oversold but that’s to be expected in this sort of environment.

The initial target of the breakdown is the September low of 0.8568.

Looking at this four-hour chart, you can certainly make a case for extended declines. The measured target of the break below support is 0.8206 which falls roughly in line with the 200 day moving average of 0.8260.

Is AUD/USD ready for another push higher?

This chart has tended to overshoot in the past before a swift move higher. The trendline has been tested four times in the past. It has rallied virtually every session (14 out of 16 days, with two minor down days) in the four sessions following a failed break. The average gain in the four days that follows a failed break is slightly more than three cents.

On factor that raises some concerns is that the daily Bollinger hasn’t tested the lower band like in other instances. This raises the possibility of a further correction.

On the hourly charts, we see further reason for guarded optimism. Since the peak at 94 cents on Nov. 16, the rebounds have followed a similar pattern with a rebound to the 61.8% and 38.2% Fibonacci levels. The most recent decline has already rebounded above the 61.8% level, suggesting a 100% retracement to 0.9210.

With this sort of scenario in mind, a short-term trader may wish to go long AUD/USD now, risking no more than 0.9100 with a target of 0.9200. After that target is achieved wait for any pullback to establish new AUD/USD longs, never risking more than 0.9100.

 The reaction was predictable. There was some speculation of a 50 basis point rate hike (the OIS market suggested an 18% chance), so that had to be wiped away.

Now the AUD will start to look ahead. The market has priced in 210 basis points of tightening in the next 12 months and it’s those expectations that have fuelled the Aussie dollar rally.

Technically, we see AUD in the centre of a wedge patter if we zoom out on the one-hour chart.