13:32, 07 May

Near Four Month Low Around 0.70 as RBA Rate Cut a 50/50 Bet

In the last week or so the AUDUSD has continued to decline further moving to a four month low under 0.70. Only a couple of weeks ago the AUDUSD dropped very sharply to near 0.70 within 24 hours and this saw it fall below the key 0.7050 level to a six week low. Significantly it has been unable to move back above this level as it is now offering resistance and preventing it from returning to its range above 0.7050. 
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. A few weeks ago the AUDUSD 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 last 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.  The RBA meets again today in what will be one of the most closely followed in nearly three years, with the chance of a cash rate cut suddenly looking very realistic.  However, of significance is the upcoming federal election to be held on 18th May – history suggests the RBA won’t move on rates so close to an election, having only done it twice before – both times resulting in a change of government.  An interest rate cut only 11 days out from an election would potentially undermine the current government’s stance that the economy is doing well.  Earlier last month, the Australian central bank said interest rates would need to be slashed if “inflation did not move any higher and unemployment trended up.”  Many are suggesting that rates will definitely be cut by July, however possibly not this month.