AUD/USD: early Asian supply continues, offers stemming from IMF warnings to RBA?

AUD/USD opened with a slight offer in a bearish gap and attempts to stabilise with a bid keeping the dollar bulls in check at 0.7665 failed as the supply continues in early Asia and the Aussie is printing fresh lows for the session so far at 0.7661.

AUD/USD was a strong performer following a strong performance in oil in the US session last week that enabled a bid in the commodity bloc currencies. However, the biggest recent news for the Aussie were warnings from the IMF that was urging the RBA to slash rates to avoid a low-growth trap. This comes after the recent decision from the RBA to hold its first meeting this year. the decision was widely anticipated, especially considering the strength in the housing market over the second half of 2016 as well as a supportive commodity market and consistent rise in investment activity since the latest round of rate cuts in May and August last year. 

Despite inflation consistently below the RBA’s target range of between 2-3% for almost three years, the heat in the housing market is one of the primary reasons why the cash rate hasn’t moved lower. However, the IMF are much more pessimistic on economic outlook than the RBA by saying that they should halve its ­policy rate over the next six months to 0.75 percent in order to avoid their economy getting stuck in a low inflation and low-growth trap.

However, as we have seen across the waters in New Zealand, and as noted by Wheeler, governor of the RBNZ, who said in the post meeting presser, "We think the market assessment has got a bit ahead of itself at this point." Well, the same may be true of the Aussie in respect to its value from 0.68 to 0.7830/50 mid 2016 highs, an area of resistance for 2016 and a target on the bulls radar currently within the 2017 reversal merting recent highs of 0.7695 on 27th Jan.

AUD/USD levels

Analysts at Commerzbank noted that the market eroded the 2013-2017 downtrend recently and cleared the 0.7645 Fibo resistance.  "In doing so, this has introduced scope to the 0.7778/.7850 2016 highs and the 38.2% retracement," suggested the analysts, adding, "Directly above here lies the 200-month ma at 0.7930. Very near term we would allow for a dip to 0.7470/.7490 ahead of further gains."