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AUDUSD - Rallies Above 0.7050 as RBA Expected to Cut Rates



AUDUSD - Rallies Above 0.7050 as RBA Expected to Cut Rates
In the last week the AUDUSD has fallen sharply back down through support at the key 0.7050 level down to a three month low below 0.70, before rallying strongly in the last 24 hours. Generally in the last few weeks, 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 up until the last few days.

Before dropping into its current 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. It is interesting that the 0.7050 hasn’t resisted prices allowing the AUDUSD to rally back above.

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.

In its October board meeting, 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.  A few weeks ago, RBA governor Philip Lowe hinted that the central bank will consider cutting interest rates even further, in order to support jobs growth and alleviate currency pressures, when he spoke at an investment conference.  With the RBA board meeting again today, analysts are now predicting a further rate cut today, although moving from 0.25% to 0% is not guaranteed and there is nothing that stipulates that moves must be in 0.25% intervals.  A move down to 0.1% might be more realistic, rather than hitting zero.  There is also an expectation that the RBA begin a bond buying program as the Australian economy is really struggling to climb its way out of recession.  Some are expecting there may more volatility than normal around the announcement today as the central bank makes comment about the economic outlook and the potential for quantitative easing.

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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.