AUD/USD – Steady Below Resistance at 0.88

During the few weeks the Australian dollar has done well to stop the bleeding and trade within a wide range roughly between 0.8650 and 0.88.  Prior to that it had experienced a sharp decline throughout September which saw it move from close to 0.94 down to below 0.8650 and an eight month low in the process. Despite the current resistance at 0.88, it was able to move through to a two week high above 0.8900 a couple of weeks ago before recently falling sharply below 0.87 again.  The resistance level at 0.88 remains a factor and is continuing to place downwards pressure on price, however more recently all eyes have turned on to the support level at 0.8650 to see if the Australian dollar can remain above it. Several weeks ago the Australian dollar found some much needed support at 0.8950 and rallied back up to just shy of the key 0.90 level before resuming its decline. The long term key level at 0.90 was called upon to desperately provide some much needed support to the Australian dollar, which it did a little a few weeks ago, however it has more recently provided resistance.

Back at the beginning of September the Australian dollar showed some positive signs as it surged higher again bouncing off support below 0.93 and reaching a new four week high around 0.94 however that all now seems a distant memory. The Australian dollar reached a three week high just shy of 0.9480 at the end of July after it enjoyed a solid period which saw it surge higher through the resistance level at 0.9425 to the three week around 0.9480, before easing back towards that level. The Australian dollar enjoyed a solid surge higher reaching a new eight month high above 0.95 at the end of June, only to return most of its gains in very quick time to finish out that week. Since the middle of June the Australian dollar has made repeated attempts to break through the resistance level around 0.9425, however despite its best efforts it was rejected every time as the key level continued to stand tall, even though it has allowed the small excursion to above 0.95.

After the Australian dollar had enjoyed a solid surge in the first couple of weeks of June which returned it to the resistance level around 0.9425, it then fell sharply away from this level back to a one week low around 0.9330 before rallying higher yet again. Its recent surge higher to the resistance level around 0.9425 was after spending a couple of weeks at the end of May trading near and finding support at 0.9220. Throughout April and into May the Australian dollar drifted lower from resistance just below 0.95 after reaching a six month high in that area and down to the recent key level at 0.93 before falling lower. During this similar period the 0.93 level has become very significant as it has provided stiff resistance for some time. The Australian dollar appeared to be well settled around 0.93 which has illustrated the strong resurgence it has experienced throughout this year.

The background to economists commentary last week in Australia was a sobering speech from the RBA.  RBA assistant governor Guy Debelle referred repeatedly to a potential sell-off in financial markets once the current period of unusually low volatility inevitably ended, and to the likelihood that it could be violent.  Later that night, the US share market turned downward, only to bottom out more than four per cent lower a little over 24 hours later.  More than one economist referred to the market action as “carnage” – they included St George Bank’s Besa Deda and NAB’s Spiros Papadopoulos.  Merrill Lynch economists Saul Eslake and Alex Joiner zeroed in on Dr Debelle’s remark that a lower exchange rate would help to achieve balanced growth in the Australian economy.  “This passage again makes it abundantly clear that the RBA wants to see the $A lower still and is focused more on its supporting of economic growth than being concerned about any inflationary impact it may have,” they said.  September quarter inflation figures are due on Wednesday.  Commonwealth Bank’s Michael Blythe thinks economists might be surprised by the strength of the rise in the CPI.

(Daily chart / 4 hourly chart below)

AUD/USD October 19 at 22:45 GMT   0.8762   H: 0.8764   L: 0.8745

AUD/USD Technical

During the early hours of the Asian trading session on Monday, the AUD/USD is trying to rally back up and test the resistance at 0.8800 again after finishing last week meeting significant resistance there.  The Australian dollar was in a free-fall for a lot of last year falling close to 20 cents and it has done very well to recover slightly to near 0.95 again earlier this year. Current range: trading right around 0.8760.

Further levels in both directions:

• Below: 0.8650.
• Above: 0.8800, 0.9000, and 0.9100.