AUD/USD breakdown pauses ahead of RBA, FOMC minutes
James Chen, CMT November 20, 2017 5:42 PM
The past two-and-a-half months have seen the Australian dollar weaken considerably against the US dollar.
This week features the release of policy meeting minutes from three major central banks, which will include both the Reserve Bank of Australia and the US Federal Reserve. The RBA minutes from its meeting two weeks ago will be released on Tuesday in Sydney. The Fed’s minutes from its November 1st FOMC meeting and statement will be released a day later, on Wednesday of this week.
The past two-and-a-half months have seen the Australian dollar weaken considerably against the US dollar. Contributing to the Australian dollar’s weakness has been a generally dovish Reserve Bank of Australia – which kept interest rates unchanged two weeks ago – as well as relatively soft economic data emerging from Australia of late. The RBA has recently continued to harbor concerns over weak inflation, low wage growth, and the relative strength of the Australian dollar, which have combined to preclude the central bank from raising the cash rate from its current record low of 1.50%.
Also contributing to the fall of AUD/USD in the past few months has been a generally-rising US dollar that has been supported, in part, by anticipation of higher interest rates from the Fed as well as fiscal policy reforms from the US government. As for Fed expectations, markets have continued to see more than a 90% likelihood that the Fed will raise rates in December, which has been the case for many weeks now. From a fiscal policy perspective, both the US House of Representatives and Senate have already unveiled their own tax reform plans, and the key question now is whether a definitive tax policy can be approved by the end of the year. Recent uncertainties regarding such tax policy have weighed on both the dollar and, to a lesser extent, US stocks in the past couple of weeks.
From a technical perspective, in the run-up to the RBA and FOMC minutes releases, AUD/USD has already broken down decisively below several key support factors, including a bearish inverted pennant pattern, 0.7600-area support, and a major uptrend support line extending back to the 0.7150-area lows of last December. The breakdown below the long-term trend line is of the most technical significance. If the slide is sustained through this week’s central bank releases and the vagaries of passing US tax reform policy, the next immediate downside target on further AUD/USD weakness is around the critical 0.7500 support area. On any extended break below 0.7500, the next major downside target resides around key 0.7300 support.
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 Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.