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Australian Dollar Looking at Longest Drop in Seven Years, Selling on Kiwi Demand

by on November 23, 2013 5:05 am GMT
 

The Australian dollar continues pairing back from a recent rally to .9757 and dropping to .9185 on Friday’s close of the FX market. Looking at the longest run of weekly declines, the Australian dollar  falls on speculation of central bank intervention as the Reserve Bank of Australia (RBA) released a statement underlying FX intervention as a potential tool if the currency fails to decline on its own. The RBA still claims that the Australian dollar is historically high.

Interest rate cuts are still a tool the RBA may look to implement. “There is caution in the market that the RBA may cut rates if the Aussie strengthens,” according to Daisaku Ueno, chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. The selloff was also expedited as demand for the kiwi was seen in-light-of  the Reserve Bank of New Zealand (RBNZ) Asst. Governor John McDermott saying the kiwi was overvalued. The demand in the kiwi was largely due to Aussie selling and speculation that the RBNZ will increase interest rates sometime in the near future.

The RBA may have to intervene as they grow impatient of the Australian dollar’s inability to fall significantly enough to spur growth expansion and demand. The AUD is commonly linked to risk appetite, and Ueno said “the Aussie is unlikely to fall much amid risk-on sentiment.”

 

The weekly chart of AUDUSD is showing further downside to retest the yearly low of .8847. This is confirmed via the increased bearish fundamental sentiment and the inability for Aussie to shake the yearly downtrend. Concurrently, price action broke the 38.2 Fibonacci level and closed below this level, remaining at the bottom of the weekly range.

The 50 EMA dipped below the 200 EMA on the weekly chart and could support trader’s bearish sentiment. The closest resistance on the weekly is at .9275, while support lies at the yearly bottom. If broke, price action could take AUDUSD lower to .8654.

.8563 still remains the yearly target.

WK Chart of AUDUSD

WK Chart of AUDUSD