Top Story

AUD/USD rises to critical juncture despite RBA easing

Despite the fact that the Reserve Bank of Australia (RBA) lowered its cash rate by 25 basis points last week to a new record low of 1.50%, as was widely expected, the Australian dollar has continued to show persistent strength within a sharp uptrend that has been in place since late May.

After lowering interest rates last week, the RBA cited in a formal policy statement its concerns over the strength of its currency, low inflation, and uncertainty in China’s economy. Last week’s rate cut followed May’s 25-basis-point cut to 1.75%, the first such slashing of interest rates in a year. While a central bank rate cut, expected or not, typically results in a weakening of the relevant currency, quite the opposite happened. The Australian dollar climbed significantly on the day of the RBA’s action, and has continued to rise steadily since then. This was due in part to the market’s perception and speculation that the central bank may be done with its monetary policy easing for the time being.

The reality could be far different, however, if the Australian dollar continues to rise significantly. This would place increased pressure on the RBA to cut rates further in attempts to ward off excessive currency strength due to yield-seeking in a global low-yield environment.

Despite this potential risk of further RBA easing, it should be unlikely in the near-term unless AUD/USD were to rise to the 0.8000 psychological level or above. For now, the currency pair has just reached a critical juncture, having established a new three-month high on Tuesday just slightly above July’s 0.7675 resistance high. As noted, AUD/USD has been trading in a clear uptrend since the 0.7150-area lows in late May. This uptrend has also been supported recently by both the 200-day and 50-day moving averages. With any clear and decisive breakout above 0.7675 resistance, which would continue the entrenched bullish trend, the next major target is around the 0.7800 resistance area, in the vicinity of April’s highs.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.