Pressure Mounts on AUDUSD, Technical Outlook

by on December 14, 2013 7:27 pm BST

Risk currencies fell at the end of the week as the dollar goes into next week with some support. The Australian dollar has seen massive selling that was triggered by the better than expected employment report, but the fifth most trade FX currency is being talked down by the Reserve Bank of Australia (RBA).

After a series of rate cuts, the RBA Governor Glenn Stevens has attempted to further weaken the Australian dollar through language rather then ongoing rate cuts. Rhetoric that the currency is at historical highs (it is relatively speaking) and potential foreign-exchange intervention by the central bank still was not enough to keep the currency from taking part in the continued risk appetite.

Recently, Steven’s said a lower exchange-rate would help drive up growth in the economy and consumer demand than lower interest rates. The RBA Governor said that 85 cents per dollar was much more beneficial than 95 cents. “They have sent a message and the currency has reacted. The real risk by saying 85 cents is that the market feels more comfortable with the currency around current levels,” said Greg Gibbs, strategist at Royal Bank of Scotland Group’s Singapore location.

A lower rate of the Australian dollar would help balance the skewed economy which was highly dependent on mining investment. However, investment in the mining sector is low and the boom that helped Australia survive the financial crisis waned.

Technically, the AUDUSD is looking to retest the yearly lows of .8847, but price action did close the week on price action support of .8894. On the daily chart, resistance is layered in and supporting further downside. Dynamic resistance is seen at the 20 EMA and the 50 EMA, .9013 and .9081 respectively.

4H Chart of AUDUSD

1D Chart of AUDUSD

The daily chart, extended out four years, supports RBA Governor Steven’s remarks of mid-80s for the Australian dollar. The current short-dated levels represent key historical levels. A break and close of the yearly can lead the way for price action to hit .8760. There are small snags of support between, but the current market conditions should prevail.

The continued pressure on the Australian dollar, both by the RBA and fundamental data, the AUDUSD may give in. The market is also seeing a slowdown in equity prices. The market may not rollover completely, but slower equity grow will likely weight on risk oriented currencies.

1D Chart of AUDUSD (4-year extension)

1D Chart of AUDUSD (4-year extension)