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AUDUSD - Drops Below Key 0.7250 Level as RBA Open to More Cuts

   

 

AUDUSD - Drops Below Key 0.7250 Level as RBA Open to More Cuts
 
In the last day or so the AUDUSD has dropped back through the current key level of 0.7250 hitting a two week low. In the last week or so the AUDUSD had been resting on support at this level, after easing away from a two year high above 0.74, although looking as though it may continue to climb higher through 0.74 before the recent drop. In the week leading up to the high the AUDUSD was able to push through the resistance at 0.7250, which had been placing downward pressure on the currency pair, and this level is likely to continue to play a role in the AUDUSD. The 0.7050 level has also played a key role in the last few months first providing resistance to the AUDUSD and more recently supporting price. Should the support at 0.7050 fail, this level may reverse roles and provide some resistance again.

For the month or so before the break through the 0.7050 level, the AUDUSD had seemed content to remain within a range between another key level of 0.6850 and the resistance at 0.7050. Leading in to that range, the AUDUSD had spent several weeks pushing higher to reach 0.7050 however it ran into a wall of resistance, as it had previously offered stiff resistance to the AUDUSD last year, reinforcing how significant that level is. The 0.6750 and 0.6850 levels are also a chance to support the AUDUSD should they be called upon.

For several weeks in May, the AUDUSD consolidated in a narrow range roughly between 0.64 and 0.65, meeting some resistance around 0.6550 during that time which kept a lid on prices and stopping any rallies from continuing higher to challenge the 0.6750 level. If the 0.6750 level fails to provide some support, the 0.6550 level may also step in and prop up prices.

Generally in the last six months, the AUDUSD has done exceptionally well to recover and move back not only above 0.60 but more recently 0.70, after it dramatically dropped sharply from around 0.66 down to an 18 year low near 0.55 in the space of two weeks. As expected, the 0.60 level provided some much needed support allowing the AUDUSD to consolidate and then return to higher prices. It had been applying pressure on the key 0.6750 level before the significant drop, so it is telling that it has returned to these levels, and then beyond.

In its latest board meeting earlier this month, the Reserve Bank of Australia (RBA) kept the official cash rate at its historic low of 0.25%, however speculation has since arisen that the RBA may cut further towards zero.  The minutes from that meeting showed a subtle change in wording, with the central bank saying it will “continue to consider how further monetary measures could support the recovery”.  Westpac chief economist Bill Evans has led the speculation saying the RBA has provided clues it is considering a further rate cut to support the economic recovery.  “This is the first time since the major policy changes in March that the board has noted the possibility of further monetary measures,” Mr Evans said.  “That could mean even more easing of the current policy stance or a new approach to policy easing.  ”Westpac said the RBA may cut the official cash rate from 0.25% to 0.1%, but it would be reluctant to push rates into negative territory.  “I do not think the RBA is even close to such a move, which would likely require intervention or negative rates,” Mr Evans added.  RBA governor Philip Lowe has ruled out Australia moving to a negative interest rate position, saying its measures were providing enough support.

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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.

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