09:42, 16 January

Rallies to Five Week High Above 0.72 Despite RBA Warnings

In the last couple of weeks the AUDUSD has done very well to rally from its lowest level in many years below 0.67 up to a five week high in the last few days back above 0.72. It has eased a little in the last couple of days however it has done well to move back above the key level of 0.7150, and this level may provide some additional support like it has previously. The AUDUSD didn’t finish 2018 very well falling strongly throughout December to hit a three year low just below 0.7050 before dropping sharply down to below 0.67 and regaining lost ground just as quickly as it fell.
In mid-December the AUDUSD enjoyed some much needed support from the 0.7150, after this level played a role in the last couple of months with the currency pair bouncing off this level several times, however this level gave way to immense selling pressure which saw the AUDUSD fall from near 0.74 to its multi year low.

Throughout November the 0.73 level provided a lot of resistance to the AUDUSD so it will be interesting to see how the AUDUSD responds should it continue its rally higher. Leading up to the four month high near 0.74 at the end of November, 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 then 2½ year low during that time.

Generally throughout the last couple of years the AUDUSD has traded within reasonably tight ranges of up to six cents, and early last year we saw it push higher to its highest levels in more than two years above 80 US cents. 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.

There is a growing opinion that the next move for the RBA may have to be down.  According to AMP Capital chief economist Dr Shane Oliver, the RBA will be forced to cut rates due to rising funding pressure and deteriorating economic conditions.  He believes they will have to cut due to rising costs and weakening demand.  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.  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."