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AUDUSD - Eases from Two Year High above 0.74 as RBA Sits on Rates



AUDUSD - Eases from Two Year High above 0.74 as RBA Sits on Rates
In the last week the AUDUSD has eased away from a two year high above 0.74 where it met some reversal signals in the form of doji candlesticks, indication significant selling pressure above that level for the time being. 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 now likely to support the AUDUSD, which it has done in the last few days. 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 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 latest 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.  However the central bank did specifically mention the current Victorian restrictions which are going to cause a massive dent to the state’s economy, however stated that their current policies are sufficiently supporting the Australian economy.  RBA governor Philip Lowe said the economic fallout from the coronavirus pandemic was not as severe as first thought, however ongoing stage four restrictions in Victoria were having a major impact on the state’s economy.  “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,” he said.  “Employment increased in June and July, although unemployment and underemployment remain high.”  Mr Lowe said the RBA would not consider lifting the official cash rate until inflation targets of 2% – 3% were met.  “Fiscal and monetary support will be required for some time given the outlook for the economy and the prospect of high unemployment,” Mr Lowe 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.