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AUDUSD - Eases from 18 Month High above 0.72 after RBA Keeps Rates Steady



AUDUSD - Eases from 18 Month High above 0.72 after RBA Keeps Rates Steady
In the last few weeks the AUDUSD has been able to push strongly through the key 0.7050 level and reach an 18 month high near 0.7250 before easing in the last day or so. Since that time it has enjoyed some support from the key 0.7050 level keeping the AUDUSD above that level and near the highs. 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. It has since enjoyed support from another key level in 0.6850 however should support at 0.6850 fail, then the 0.6750 level is also likely to step and offer some support having been a significant level earlier in the year.

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 four months, the AUDUSD has done very well to recover and move back above 0.60 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 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.

In its August board meeting last week, the Reserve Bank of Australia (RBA) kept the official cash rate at its historic low of 0.25%, despite the Victorian Government imposing stage 4 restrictions across Melbourne to contain a second wave of COVID-19 infections.  There are strong indications that this rate will remain low for many years to come, with RBA Governor Dr Lowe saying in the post-meeting statement, that Australia's economy was experiencing its biggest contraction since the 1930s.  "The board will not increase the cash rate target until progress us being made towards full employment and it is confident that inflation will be sustainable within the 2-3 per cent target band," Dr Lowe said.  The central bank is now forecasting economic activity will decline by 6% over 2020 with Dr Lowe adding, "This recovery is, however, likely to be both uneven and bumpy, with the coronavirus outbreak in Victoria having a major effect on the Victorian economy."  With the official unemployment rate currently at 7.4%, Dr Lowe believes over the next two years, the unemployment rate will likely decline gradually to around 7% and welcomed the Federal Government's decision to continue JobKeeper and JobSeeker stimulus payments.

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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.