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AUDUSD - Drops Below 0.65 after RBA Cuts Rates to Historic Low



AUDUSD - Drops Below 0.65 after RBA Cuts Rates to Historic Low
The last two days has seen the AUDUSD moving sharply lower which has seen it spend most of its time below 0.65 and in doing so, near an 11 year low. It spent the last week rallying higher pushing back up towards 0.67 before the recent drop. After applying pressure to the resistance at the key 0.6750 level in the first half of February, the AUDUSD has since resumed its medium term down trend which started at the beginning of the year. Due to its current multi-year low, there are no obvious support levels available, although the AUDUSD may very well be propped up at different levels.

The AUDUSD has now spent the last month below the key 0.6750 level and is likely to meet resistance at this level again if and when it is able to rally higher. In the last three months the AUDUSD has generally fallen sharply from a six month high above 0.70 down to the current lows although it did enjoy some solid support from another key level of 0.6850 before dropping down to 0.6750.

The 0.6750 level has supported the AUDUSD well in recent months so this level is likely to continue to offer some resistance to any rally higher. Likewise the 0.6850 also looms likely to offer resistance should the AUDUSD be able to get back above the 0.6750 level any time soon. In the last two weeks of last year, it surged higher off support at 0.6850 to the six month high after having moved through previous resistance at 0.6850, which had put selling pressure on prices.

The trading range between 0.6750 and 0.6850 has been quite popular in the last six months, so it wouldn’t surprise many if it was to return there again. In the last three months of 2019, the AUDUSD steadily and slowly moved higher achieving higher peaks and troughs to rally off its ten year low around 0.6670 reached in early October. It has now however returned all those gains in half the time and has moved lower to below 0.65.

Not so long ago, the Reserve Bank of Australia (RBA) cited an increase in the unemployment rate as the most likely trigger for another interest rate cut, following three rate cuts last year to a historic low of 0.75%.  However with the coronavirus taking a grip on financial markets around the world, central banks have been under scrutiny as to what actions they would take to combat the economic fallout.  Given how quickly the virus is impacting the global economy, Australia's central bank didn’t wait any longer.  Last Tuesday, the RBA cut its official cash rate to a record low of 0.5% as it attempts to directly combat the economic effects of the coronavirus.  "The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors," said RBA governor Philip Lowe in his post-meeting statement.  "The uncertainty that it is creating is also likely to affect domestic spending. As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected."  Governor Lowe did however remain confident the Australian economy could recover quickly once the virus was under control.  "Once the coronavirus is contained, the Australian economy is expected to return to an improving trend," he added.

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The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.