AUD: Gets Ready for a Swim in the Shallow End

The Aussie Dollar experienced a week of falls as the pair remained under the grips of a bearish trend line. However, the pain is not yet over as the Aussie challenges support and further bearishness in the days ahead is likely.

The Chinese devaluation appears to still be weighing upon the AUD as the market takes time to digest the economic impact to commodity exports. The Australian economy has been under a cloud for some time, due to the rout in global currency prices. However, the recent CNY devaluation complicates things for the battling country as it has a direct impact upon Australia’s fragile balance of trade. The market knows this and, subsequently, sellers were in force as the pair fell strongly to 0.7200 to test strong support.

The coming week is likely to be volatile for the AUD as the market will be closely monitoring the scheduled statements from RBA Governor Stevens. There is speculation that the speech could be more dovish than expected given the CNY devaluation and turmoil in world equity markets. Looking forward, the AUD will be dominated by the U.S. data, with the Core Durable Goods and Unemployment Claims, playing centre stage.

Considering the recent focus upon the U.S. Federal Reserve’s desire to hike interest rates, it is not surprising that the Aussie Dollar is under significant pressure. However, plenty of steam has evaporated from the bullish U.S. Dollar sentiment of late. So the move to breach the 0.72 handle is one driven by increasing fears over a China slowdown as compared to any strengthening in the greenback.

From a technical perspective, the pair’s moving averages have declined and look set to head lower. RSI has also turned decidedly bearish as it starts to trend lower within neutral territory signalling that there is still plenty of room to move on the downside. The pair faces significant headwinds and any breach of the key support level at 0.7238 could see further falls. Support is found at 0.7233, and 0.7193. Resistance is found at 0.7393, 0.7468, and 0.7541.

Ultimately, the coming days are likely to prove troublesome for long biased traders, as the larger market sentiment appears to fall upon the short side. Keep a close watch on the U.S. economic data due out, but look for opportunities below the 0.72 handle.