12:29, 12 March

Clasps to Key 0.7050 Level as RBA Warns on Housing

In the last few days the AUDUSD has rallied well and moved back up above the current key level of 0.7050. In the last couple of weeks however the AUDUSD has fallen from near 0.72 down to its lowest levels in two months at 0.70 before the recent rally. For the most part in the last two months, the AUDUSD has traded within a narrow range between 0.7050 and around 0.72. 
In early February 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.

For the 31st month in a row, the Reserve Bank of Australia (RBA) left the official cash rate on hold last week however said it still expected the Australian economy to grow by about 3.0% in 2019 thanks to a strong labour market.  However they also conceded that weak wages growth and faltering property markets remain concerns.  “The growth outlook is being supported by rising business investment, higher levels of spending on public infrastructure and increased employment,” RBA governor Philip Lowe said in his monetary policy decision statement.  “The main domestic uncertainty continues to be the strength of household consumption in the context of weak growth in household income and falling housing prices in some cities.”  Of some concern, research from the central bank found its cuts in official interest rates drove up house prices, and cautions that Australia's property market may suffer a similar fate as long-term falls seen in the United States.  Last week Governor Lowe downplayed the role of the RBA in the dramatic increase in house prices since 2011, which in Sydney and Melbourne climbed by up to 75%, peaking in 2017.  Sydney's house prices are dropping at their fastest rate since the 1982 recession, while they are also trending down in every capital city with the exception of Canberra and Hobart.