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AUDUSD - Surges Above Key 0.6750 Level as RBA Urged to Go Below Zero

   

 

AUDUSD - Surges Above Key 0.6750 Level as RBA Urged to Go Below Zero
 
In the last day or so the AUDUSD has surged to its highest level in more than four months breaking through the key 0.6750 level which has played a significant role in the last 12 months. It had been meeting some resistance around 0.6650 for several days before surging higher. The 0.6850 level is likely to step in and provide some resistance as this has also played a role last 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.

Now that the 0.6750 level has been broken, this may provide some support or failing that, the 0.6550 level may also step in and prop up prices. Generally in the last two months, the AUDUSD has done 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 ad 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. As has been previously mentioned, the 0.6850 now looms likely to offer resistance now that the AUDUSD has been able to get back above the 0.6750 level.

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. The trading range between 0.6750 and 0.6850 has been quite popular in the last six months, so it is significant that it has been able to return there. In the last three months of 2019, the AUDUSD steadily and slowly moved higher achieving higher peaks and troughs to rally off its ten year low around 0.6670 reached in early October.

The board of the Reserve Bank of Australia (RBA) meets again today for their monetary policy decision, when they are expected to hold the official cash rate at its historic low of 0.25%.  There is no possibility of it being raised so the only other option is to lower again, however many analysts expect no change.  However, despite the RBA Governor Philip Lowe stating only recently that it was highly unlikely the central bank will follow other countries and move into negative rates, analysts are starting to make a noise about the possibility.  Westpac chief economist Bill Evans believes negative rates will help the economy thanks to major banks cutting their lending rates even further and placing downward pressure on the Australian dollar.  “A serious case can be made for the RBA to consider further cuts and entering negative territory for the cash rate if it becomes apparent that the economy is deteriorating even more than is currently expected,” he said.  “A small open economy with significant foreign liabilities would certainly see a substantial improvement in the competitiveness of the currency with further rate cuts when other major markets are anchored at their effective lower bounds.”

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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.

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