10:28, 20 December

Looking for Support from 0.7150 as RBA Warns on Growth

The AUDUSD has not enjoyed its last few weeks moving strongly lower from four month highs near 0.74 down to a seven week low below 0.7150 in the last 24 hours. It is of little surprise that the AUDUSD has enjoyed some much needed support from the 0.7150 level in the last few days, as this has played a role in the last couple of months with the currency pair bouncing off this level several times. It will be interesting to see if the AUDUSD can regain lost ground and move back above this level. Throughout November the 0.73 level provided a lot of resistance to the AUDUSD so it was quite significant how strongly the AUDUSD moved through this level a few weeks ago down to its current levels. Leading up to the four month high, the AUDUSD had made some solid ground over a few weeks reversing from support at 0.7050 and moving higher.


Just prior to this push 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 throughout October, although it did drop a little lower reaching a 2½ year low during that time. The 0.7050 level may be called upon again shortly if the 0.7150 level fails to provide adequate support. 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.

Generally 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 minutes from the latest board meeting of the Reserve Bank of Australia (RBA) showed that the board members spent considerable time discussing the recent slowdown in global growth momentum, partly caused by the ongoing trade dispute between the United States and China.  Even though it is likely the next rates move will be up, a combination of falling home prices, significant household debt and low wage growth posed downside risks to the Australian economy, the central bank warned.  "The outlook for household consumption continued to be a source of uncertainty because growth in household income remained low, debt levels were high and housing prices had declined. Members noted that this combination of factors posed downside risks," the RBA said."Notwithstanding this, the central scenario remained for steady growth in consumption, supported by continued strength in labour market conditions and a gradual pick-up in wages growth.  "Interest rates have remained at 1.50% since in August 2016 and are likely to stay that way for some time.  "Members continued to agree that the next move in the cash rate was more likely to be an increase than a decrease, but that there was no strong case for a near-term adjustment in monetary policy," the RBA said.