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AUDUSD - Moves Above 0.73 as Australians Urged to Ramp Up Risk Appetite



AUDUSD - Moves Above 0.73 as Australians Urged to Ramp Up Risk Appetite
In the last week or so the AUDUSD has rested on and enjoyed support from the key 0.7250 level having surged higher in the week prior through the key level. Prior to the surge it had fallen sharply back down through support at the key 0.7050 level down to a three month low below 0.70, before rallying strongly. Having resisted prices so strongly, it was no surprise that the 0.7250 level stepped in and offered support once it was broken through so strongly. If it can remain well supported by the key 0.7250 level, it may very well threaten the two year high above 0.74 set in August. Generally in the last month, the AUDUSD has spent most of its time trading between two key levels, meeting resistance at 0.7250 and being supported at 0.7050, after having fallen sharply through the 0.7250 level down to a then two month low below the key 0.7050 level in late September.

It did well to rally quickly to back above the 0.7050 level which had supported the AUDUSD, although the 0.70 level has helped out a little too. Before dropping into its recent range, the AUDUSD spent around two weeks resting on support at 0.7250 after easing away from a two year high above 0.74, which is why the 0.7250 has offered resistance since. In the week leading up to the two year high the AUDUSD was able to push through the resistance at 0.7250, which had been placing downward pressure on the currency pair. 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.

For the month or so before the break through the 0.7050 level in July, 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 earlier in the year.

Australians are being urged by the Reserve Bank of Australia (RBA) to increase its appetite for risk, on the basis that they believe the coronavirus pandemic has left the country too risk averse.  Speaking at a dinner in Sydney, RBA Governor Philip Lowe says that it could take longer for Australia to recover from its recession without an acceleration in activity.  Dr Lowe added that for some time "people will be more cautious in their borrowing and spending decisions", and that it was important that households and businesses guard against becoming too risk averse.  "Over the past decade or so, there have been signs that our economy was becoming less dynamic," Dr Lowe said.  "An increase in risk aversion would reinforce this trend."  Commenting on Australian equities hitting an eight month high, Dr Lowe said, "Some people will no doubt move out along the risk spectrum - as they do so, the additional investment risks will need to be understood and managed."  In a speech last month, RBA assistant governor Michele Bullock warned Australia's economic recovery would be "unpredictable and uneven" and more Australians could go into "negative equity", where the value of their property falls below the outstanding balance on their mortgage.

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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.