Aussie Dollar Facing a Volatile Week

The Australian dollar has experienced some sharp volatility early, ahead of the vaunted RBA interest rate decision, but the risk of a slowing China looms large.

The AUD saw some sharp volatility early in the week as the turmoil in China impacted the economic outlook for the country. Subsequently, the pair fell sharply to form a low at 0.7030, before clawing its way back to trade around the 0.7140 level. The changing economic view of China caused the market to reconsider the AUD’s valuation and, subsequently, sellers were in force with the pair falling strongly to 0.7030 before closing around the 0.7140 level.

The market has been relatively quiet ahead of the Reserve Bank’s decision on interest rates. As expected, the central bank opted to keep rates steady at 2.00%; subsequently there was little volatility with the pair closing up around 20 pips. It would appear that the central bank is relying upon the U.S. Federal Reserve to hike rates and thereby depreciate the AUD.

However, there is a growing sentiment that the U.S. Fed may not raise rates and may indeed delay any monetary policy action until 2016, especially given the ongoing Chinese slow down. If this suspicion becomes reality the RBA may very well be forced to act decisively to support the ailing Australian economy.

Regardless of the RBA’s decision to hold rates steady, the AUD is facing a week of strong volatility as the market looks for hints of the Fed’s intentions. Considering the relative importance that is placed upon the Non-Farm Payroll figures, you can expect the Aussie Dollar to move strongly. The NFP’s are forecast at 219k but the chance for a surprise is real given the economic flow on effects from China.

From a technical perspective, the pair’s price action has remained relatively flat since the volatility early in the week. RSI has also remained steady within neutral territory, albeit close to over-sold levels, whilst the 12 and 30 EMA’s are still hinting at further bearishness. The pair faces plenty of economic news this week that could prove to be negative for the Aussie. Support is found at 0.7029, 0.6974, and 0.6865. Resistance is found at 0.7393, 0.7468, and 0.7541.

Ultimately, the take away for the week is, expect the unexpected as the economic data could swing either way.