The Aussie against the US dollar found support at a five and a half year bottom at 0.7724 with the bearish bias proving long lasting. The falling trend lines indicate the prevailing directions in the price chart but that does not warrant future attitude. Currently the currency pair paused at 0.7724 and formed a “Doji reversal candlestick” which could be an early signal for a retracement.
Furthermore, we are expecting tonight the Reserve Bank of Australia decision about the main Cash rate. We would anticipate the central bank to hold key rate unchanged at 2.50% depending on the rate statement tone, hawkish or dovish then the Aussie would respectively either be underscored or squeezed. Economic data for Australia during January were optimistic suggesting hawkish expectations however falling commodity prices hurt the economy and triggered some dovish forecasts. Thus we would be watching the rate statement cautiously.
The Stochastic oscillator is oversold for some time now and the RSI (14) is below the 30 line. The Average Directional Index suggests that there is no strong downtrend in the chart pattern. All together drives us to the conclusion that we might be at the beginning of a correction. Should the prices breach the next cap at 0.7874 then prices could move towards the 50.0% Fibonacci retracement of 0.8298 to 0.7724, at 0.8026. Nevertheless, we would be cautious since that is a risky strategy ahead of RBA statement.
Resistance - 0.7857; 0.8026; 0.8078 Support - 0.7724; 0.7613; 0.7501
Aussie Drops to Record Fresh Lows as RBA Cuts Benchmark Rate
The Reserve Bank of Australia decided yesterday to cut the cash rate from 2.50% to 2.25%. The 25 basis points reduction was a surprise for the market participants who have been expecting no change. The monetary statement by Governor Glenn Stevens was also dovish, highlighting commodity prices declines, stating that “growth is below-trend pace” and closing by saying that “a lower exchange rate may be needed”. The AUDUSD declined suddenly from 0.7829 to 0.7650 achieving a fresh low level since May 2009.
As we can see at the chart below, the left vertical axis is the RBA main Cash rate and the right vertical axis represents the monthly AUDUSD exchange rate path. We can recognize the positive correlation between the cash rate and the AUDUSD because when the RBA was reducing rates the Aussie was declining against the US dollar. Therefore we keep a bearish bias over the longer term for the currency pair. Coming back to the shorter term a key support level at 0.7722 is reached and fresh sell off has been triggered, down trend prevails but the oscillators are oversold and some indicators provide bullish divergence warnings.
Furthermore, the Australian dollar declined against the Japanese Yen to new 1-year low at 0.8947, previous key support at 90.29 was unable to hold its ground. The Japanese Yen strengthened in recent trading and should that continue we might see the AUDJPY moving to next support at 88.20.
Elsewhere, the Euro against the greenback remains still in consolidation zone ahead of major economic releases, between 1.1419 and 1.1262. Concerning the US Dollar, yesterday, the US ISM manufacturing reports were below expectations, in addition the US Consumer Spending showed a larger drop than expected. That weigh on the greenback but every one remains on sidelines ahaed of Non-Farm Employment. The Kiwi against the greenback went to fresh lows at 0.7178 weighed by RBA decision to cut rates. Later on today we are expecting Euro PPI, US Factory Orders and New Zealand Unemployment rate expected at 5.3%.
The Australian dollar jumped this morning to cap at 0.7833, near the March highs. The forex pair is one step away to create a bullish “failure swing” pattern by breaching upper limit at 0.7833, which would increase bullish expectations. As we can see at the chart below the AUDUSD rose above its downward daily trend line and the Friday candlestick created a “piercing line” candlestick pattern. Should the forex pair pierce the cap at 0.7833 then would open the door for the next resistance at 0.7914.
Other commodity currencies were also strengthening. The NZDUSD inched above resistance at 0.7613 after the stronger than expected Westpac Consumer sentiment report. The kiwi against the US dollar could continue to next cap at 0.7852. The USDCAD declined on Friday to support at 1.2537 as CPI monthly was released at 0.9% against the expected at 0.7%, the loonie defied the weaker than projected Canadian Retail Sales.
Elsewhere, the Euro against the greenback almost returned to previous cap at 1.0921 and now is consolidating slightly below that level. Investors are focusing on the Consumer Confidence report and on ECB President Speech in the European Parliament. We expect the Euro to remain bearish as the ECB started its more than 1 trillion euros asset purchases program, thus the recent bounce up could be a nice opportunity to rethink short side.
The GBPUSD bounced up on Friday to cap at 1.4989 and is now falling towards support at 1.4850, below that the lower limit at 1.4696 would be exposed. Tomorrow there are some major releases for the pound such as the February Consumer Price Index expected at 0.3% on monthly terms and expected at 0.1% on annual terms