09:03, 28 February

Looking for Support at 0.7050 Again as RBA Now Open to Cuts

In the last few weeks the AUDUSD has been attempting to steadily climb higher to back above the key 0.7150 level but remains less than convincing. Several weeks ago the AUDUSD fell back down to support at 0.7050 after meeting stiff resistance at the key 0.73 level, and it is currently relying on support from 0.7050 which has supported the currency pair several times and very well since October 2018.
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 and it will be interesting to see if it makes a clean break one way or the other. 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.

The Reserve Bank of Australia (RBA) believes it has the "flexibility" to cut interest rates if the economy struggles this year and workers start losing their jobs.  However, the RBA doesn’t see monetary policy shifting in the “near term”, which includes the period leading up to the federal election, which must be held by May this year.  RBA Governor Philip Lowe agrees the bank’s growth outlook is “not as positive” as it was last year, however “the central scenario is a positive one”.  “With monetary policy already providing considerable support to the Australian economy, it is appropriate to maintain the current policy setting while we assess developments,” he told a federal parliamentary hearing last week.  “Much will depend on what happens in our labour market.”  He noted that regardless of which way the economy and unemployment moves, they can cut or raise rates.  “We have the flexibility to do this if needed. We are not on a predetermined course,” Dr Lowe said.  RBA assistant governor Christopher Kent says the recent depreciation in the Australian dollar has been "helpful" at a time where inflation remains weak and the economy is still using up spare capacity.