09:04, 25 April

Drops to Six Week Low near 0.70 after Record Low Inflation

In the last week the AUDUSD has fallen lower which has had an exclamation point placed on it in the last 24 hours when the currency pair has dropped very sharply to near 0.70. This move has seen it fall below the key 0.7050 level to a six week low and it will be interesting to see if it is able to rally and move back above this level. Up until recently the AUDUSD had been frustrating many as it moved very little spending most of its time in the range roughly between 0.7050 and 0.7150.
Only a couple of weeks ago the AUDUSD had crept higher and pushed through the resistance at 0.7150 to reach a six week high near 0.72, however after its recent drop, this seems some distance away.

Back at the end of February, the AUDUSD fell from near 0.72 down to its lowest levels in two months at 0.70 before a healthy rally. For the most part in the last two months, the AUDUSD has traded within a range between 0.7050 and around 0.72, although this has now tightened a little with the resistance around 0.7150 throughout most of March and April. In early February the AUDUSD fell back down to support at 0.7050 after meeting stiff resistance at the key 0.73 level, and is currently trying to rely 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 earlier this year 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. 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.

The Reserve Bank of Australia’s (RBA) streak of leaving the official cash rate on hold may be in jeopardy. Earlier this month the RBA kept the official cash rate at a record low of 1.5% however even a few weeks ago, a widely expected cut this year “looks inevitable”, many analysts say.  That may now be a lot closer after core inflation figures were released with Australia’s core inflation being reported at 1.4% over the year, which is the weakest reading since the current data series was started in 2003.  The RBA has a target band of 2-3% which inflation has sat below for the last three years and now more analysts are forecasting a cut to interest rates maybe as soon as next month, when you bundle together low inflation, a downward revision to GDP forecasts and an environment of weak growth.  Earlier this month, the Australian central bank said interest rates would need to be slashed if “inflation did not move any higher and unemployment trended up.”  Money markets are now pricing in a better-than-50% chance of an RBA rate cut next month.