10:30, 15 February

Relying on Much Needed Support at 0.7050 as RBA Downgrades Forecasts

In the last couple of weeks the AUDUSD has fallen back down to support at 0.7050 after meeting stiff resistance at the key 0.73 level. It is currently relying on support from 0.7050 which has supported the currency pair several times in the last few months. In the lead up to hitting resistance at 0.73 the AUDUSD rallied well to move past the key 0.7150 level and reach a two month high around 0.73 before easing lower. 
Just prior to the decline, the AUDUSD had done very well to rally from its lowest level in many years below 0.67 back up to above 0.7150 and beyond. Interestingly, the AUDUSD has remained within a relatively tight range between 0.7050 and 0.73 for the last six months.

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.

As widely expected the Reserve Bank of Australia (RBA) held its record low cash rate at 1.5% last week, where it has remained since August 2016.  With the exception of Australia’s key commodity prices and the Australian labour market, there wasn’t a lot for the RBA to be too excited about.  Expectations are strongly shifting that the RBA's next move may have to be down as financial markets now believe there’s a greater than 50% chance that the cash rate will be lowered by 25 basis points by the end of this year.  Leading market economists have backed away from predicting higher interest rates in 2019 after RBA governor Philip Lowe retreated from his monetary policy guidance that the next move in interest rates would likely be up. Reversing a prediction they made last year, economists at the National Australia Bank said they no longer expected the RBA to hike rates in late 2020, joining others who believe there could be a rate cut before the end of this year.  The Commonwealth Bank expects a change in the middle of next year, ANZ expected two rate rises in 2020 and Westpac expected no changes this year or next.