The Reserve Bank of Australia (RBA) left interest rates unchanged at 2.5% while continuing to target the country’s exchange rate, calling the Australian Dollar to be above its ‘fundamental value’. Last month, the Aussie broke below the lows of 0.86 but managed to contain its losses. The daily charts show a possible bullish reversal with yesterday’s daily candle closing as a spinning bottom.
The RBA’s decision was expected as the Central bank reiterated that it will continue to hold interest rates at current levels in order to support growth in the economy. Falling global commodity prices have also added additional pressure on the Australian economy. RBA Governor, Glenn Stevens said that “the Australian dollar remains above estimates of its fundamental value, in view of the declines in key commodity prices” and went on to note that “a lower exchange rate is ideal to achieve a balanced growth”.
Most recently, comments from other RBA officials hinted that the Central bank would not hesitate to lower interest rates if need be. Markets are starting to price in a 25bps cut in interest rates sometime next year should the same theme prevail as the RBA expects the Australia economy to grow more slowly for the next couple of quarters.
AUDUSD Technical Analysis
The weekly chart for AUDUSD shows that the pair is in a strong downtrend with the downward pressure on the currency likely to persist for a long time. The Aussie is currently trading within a larger upward sloping price channel but one that shows the upward momentum has completely faded as price broke out from the rising trend line. The next key support level comes in at 0.82 – 0.81 levels.
In the medium term, the daily charts show a bullish candlestick pattern that was formed yesterday. However, this is more likely to be validated if today’s price action continues to be bullish with a preferably higher close than yesterday, or above 0.8532.
As can be seen from the daily charts below, prices broke down from the bearish flag pattern and rallied to as much as 127.2% Fib level of the flag with today’s price action likely to struggle with the falling trend line.
A break of this trend line could see a confirmed move back towards the broken support at 0.8673 levels which could potentially attract new Aussie bears to push the pair down lower. The key price level to watch would be a daily close above 0.85615 levels to confirm the corrective rally. Failure to contain prices near 0.8673 could potentially see a mild rally continuing to as high as 0.8776 levels and any rally above that could possibly invalidate the technical view.
If the above view does hold and we do see a reversal near 0.86731 or 0.8776, the Aussie could, in the short term look to declines back to 0.8481 followed by 0.8237 and eventually the final long term support near 0.82 levels.
The main headwinds to the Aussie this week will be the third quarter GDP data due to be released tomorrow with a general consensus expecting a growth of 0.7%, up from 0.5% previously.