12:32, 12 November

Retreats from Six Week High as RBA Grows More Confident

The AUDUSD has enjoyed a healthy surge higher in the last week or so before declining a little finish out last week from a new six week high above 0.73. Just prior to its surge higher the AUDUSD had been quite content to take a breather and enjoy solid support from 0.7050 as it has traded along that level for several weeks, although it did drop a little lower reaching a 2½ year low a few weeks ago. After meeting resistance there for several days, the AUDUSD had slowly but surely eased lower from the key 0.7150 level before resting on the support at 0.7050. The 0.7150 level has played a role in the last couple of months as it has bounced off this level several times, and may be called upon again should the AUDUSD continue to decline.

Throughout June and July the AUDUSD had been quite content to trade around 0.74 and it previously made a few attempts to break through the resistance at 0.75 however all of these were thwarted. During this period, the significant level at 0.75 loomed like a dark cloud. This same level has previously propped up the currency pair before being broken strongly mid June. Throughout June the AUDUSD has dropped very sharply from a one month high above the key 0.7650 level down to a new 12 month low around 0.7310. It was only in early May that the AUDUSD was trading below 0.75 and looking poised to continue much lower, so it did well to rally higher and get back above the 0.75 level.

Throughout the last couple of years the AUDUSD has traded within reasonably tight ranges of up to six cents, and in the last nine months or so we have seen it push higher to its highest levels in more than two years above 80 US cents. The 80 cents level however has provided a significant obstacle to the AUDUSD as it has met resistance there since the middle of 2017. Repeated attempts to push through the key 80 cents level were short lived and the AUDUSD quickly sold off moving it lower down to its current levels.

The Reserve Bank of Australia (RBA) left the official benchmark interest rate at 1.5% last week just as everyone expected.  Shortly afterwards they released their quarterly report in which the RBA stated that they now see the unemployment rate below 5% in 2020 and has edged up the GDP forecast, however household debt and low wage growth remain key concerns, and consequently the official interest rate is likely to be on hold through next year.  In the statement on monetary policy, the central bank signalled it would hold onto the record-low cash rate setting of 1.5% despite saying the economy was "performing well".  "If that progress is made, higher interest rates are likely to be appropriate at some point," the statement said.  "However, given the expected gradual nature of that progress, the board does not see a strong case to adjust the cash rate in the near term.  "Earlier in the week, the RBA left rates steady for the 27th consecutive board meeting month.  On their housing concerns, the RBA says demand in the Sydney and Melbourne markets has "clearly slowed", with house prices continuing to "decline steadily".  "The outlook for household income remains a key uncertainty especially in the context of high household debt and a slowing housing market," the RBA says.