AUD/USD – Rests on Support from Key 0.7850 Level

After a solid start to last week, the Australian dollar eased back towards the key 0.7850 level where it has received some support to close out last week.  In its early week surge, it moved to a three month high just shy of 0.81.  Throughout most of the last few weeks the Australian dollar enjoyed a strong surge higher to the three month high at 0.8075.  To start last week the Australian dollar looked poised to break through the long standing resistance level at 0.7850 even though this level has stood up tall for several months now.  A couple of weeks ago the Australian dollar fell sharply but landed on the previous key level at 0.77 which has offered considerable support since that time. A few weeks ago saw the Australian dollar enjoy a solid week moving off support around 0.76 to reach a three week high just shy of the resistance level at 0.7850. In doing so, it moved through the key resistance level at 0.77.

Since the beginning of March the Australian dollar has relied heavily on support at the 0.76 level.  Below 0.76 its next obvious support level is down at 0.7550 and it will hoping to be propped up by it. Back in early March the Australian dollar made a statement and broke down strongly through the key 0.77 level which then provided significant resistance for the following few days. It was also able to enjoy some short term support around 0.7550 which propped it up and allowed it to rally strongly back up to above 0.79. Throughout February the Australian dollar made repeated attempts to move up strongly to the resistance level at 0.7850 however it was rejected every time and sent back easing lower, which is why this level remains significant presently. Just prior to that towards the end of February the Australian dollar moved through the resistance at 0.7850 to reach a new four week high around 0.7900. In the second half of January, the Australian dollar fell very sharply and break lower from the trading range that had been established roughly between 0.8050 and 0.8200.

Back in mid-January it made numerous attempts at the resistance level at 0.82 only to be sent back often before finally finishing that week moving through this key level. In doing so it was able to reach a one month high near 0.83 before being sold back down again towards 0.82 as the resistance and selling activity above this level kicked in. Over the Christmas / New Year period, the Australian dollar seemed to have been content with trading in a narrow range below the resistance at 0.82, which continues to remain a key level as it is presently provides resistance. The Australian dollar experienced a disappointing November and December moving from resistance around 0.88 down to the new lows recently. For a couple of months from September through to November, the Australian dollar did well to stop the bleeding and trade within a range between 0.8650 and 0.88 after experiencing a sharp decline throughout September which saw it move from close to 0.94 down to below 0.8650.

The Australian sharemarket should enjoy a positive start to the week before investors’ attention turns to an expected interest rate cut by the Reserve Bank.  Stocks will likely open higher on Monday following a sharp rise on the US market on Friday, with the Dow Jones Industrial Average gaining more than one per cent or 183.54 points to 18,024.06.  All eyes will be on the Reserve Bank of Australia board meeting on Tuesday, with 12 of the 15 economists surveyed by AAP expecting the RBA to cut the cash rate to a new record low of two per cent.  Economists predict it will be a finely-balanced decision.  “The case for another cut remains strong: the outlook for business investment remains weak, commodity prices are softer than expected, the Australian dollar remains too high and is at risk of rebounding further and inflation is benign,” AMP Capital chief economist Shane Oliver said.  “However, the RBA may continue to fret about housing leverage and Sydney home price gains, and the bounce in the iron ore price over the last few weeks has eased the pressure on the RBA a bit.  “So while our base case is for a cut, another month on hold would not be surprising.”

(Daily chart / 4 hourly chart below)

AUD/USD May 4 at 00:05 GMT   0.7831   H: 0.7850   L: 0.7829

AUD/USD Technical

During the early hours of the Asian trading session on Monday, the AUD/USD is enjoying support around the 0.7850 level after easing back from its three month high near 0.81. Current range: trading right at 0.7850.

Further levels in both directions:

• Below: 0.7850, 0.7700, and 0.7600.
• Above: 0.8000 and 0.8200.