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AUDUSD - Steady Under 0.72 ahead of RBA Meeting



AUDUSD - Steady Under 0.72 ahead of RBA Meeting
In the last few days the AUDUSD has settled in a narrow range just under 0.72 after rallying well in the previous week from a two month low below the key 0.7050 level. Having rested on support at another key level at 0.7250, the AUFUSD fell sharply through this level down to the low. It spent around two weeks 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, as it now sits below this level. 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 earlier in the year. 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 last 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”.  Later today the RBA will meet again to review the official cash rate however many still believe they will hold rates again today, although it isn’t a significant majority.  Financial markets have priced in a 40% chance of a rate cut to 0.10%.  Many do expect that the central bank will wait and see the impact of the expected additional $25 billion in extra government funding in the federal budget later that night.  Other economists are not expecting a rates move at all until next year, while others are suggesting the RBA should copy the US Federal Reserve's (Fed) indication on lowering average inflation targets.  Last month the Fed dropped its policy of deploying monetary policy to maintain 2% inflation.

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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.