Forex: AUD sellers caught wrong-footed; RBA comments on AUD carries danger (Barcelona) - The Australian Dollar just had a sharp fall yet committed dip buyers have emerged without hesitation off the 1.02 handle, taking the spot rate back to where the decline started. The catalyst were comments from the RBA that the Australian Dollar appears overvalued by 4% to 15% based on modeling, which indicates that at a minimum, the central bank thinks the rate should be trading somewhere around the 0.98 area. Sellers, while taking quick notice, have failed to regain the downside.

This type of flash fall has helped to understand two things; firstly, against the backdrop of a daily bullish pin bar pattern, a growing number of short term traders seem to be betting for a potential recovery, perhaps back to the 20-day EMA at 1.03 - tested several times on the way down - , although a bumpy road is expected ahead. Secondly, the RBA comments seem to be contingent on increased risks of more rate cuts in order to re-adjust AUD value.

As FXWW founder Sean Lee notes: "I suspect that the short-term market is now caught short and the danger is that we see a short-squeeze during Asian FX market trade. If stocks turn bullish in the region, we could see AUD/USD back up towards 1.0300."

While direct intervention still seems some fair miles away, actually the RBA still crossing the newswires saying: "Australia not comparable to Switzerland – the Swiss faced a clear and credible case for intervention", the interest rate is still a secondary weapon that may potentially be used to impact on the Aussie value.