AUDUSD Outlook: Week of 3/9

by on March 8, 2014 8:34 pm BST

The Australian dollar is “historically high,” according to Reserve Bank of Australia (RBA) Governor Glenn Stevens, but he does not see reducing interest rates farther, and giving the currency a reason to strengthen. AUDUSD reached .9132, a three-month high, but drifted lower after the US dollar seen a boost in confidence after Friday’s non-farm payrolls report.

Central banks around the world have been reduced to rhetoric with benchmark rates at historical lows. Stevens has mentioned that the Australian dollar is “historically high” and that an exchange-rate below .90 cents per US dollar would been helpful to spur economic growth. Unfortunately, the RBA is unwilling to reduce rates further and leaving it up to the markets to decide. “That’s a bit of a shift on our part, where we had been saying that there might be scope to go down a bit more if needed. I don’t think we do need to at this point in time,” he said.

The RBA is looking to transition the economy from one largely based on mining and natural resource investment to residential construction and household consumption. “I’ve said that I thought in the 90s or over a dollar was rather higher than any plausible assessment you could come to based on our costs and productivity relative to other countries. I haven’t changed my view about that,” said Stevens. However, the central bank head seemed like he ran out of the so-called tools central bankers speak out outside of cutting rates. “I have nothing new to say,” mentioned the RBA Governor.

Australia has been hit with a multitude of negative data points, ranging from decade high unemployment, decreased wages, and concerns over the slowdown in the Chinese economy two weeks ago that caused the AUDUSD to decline, but this week’s data supported price action. Gross domestic product, quarter-over-quarter, increased to .8 percent, beating the .7 percent analyst expectations. Retail sales were much stronger than last month, and the trade balance seen the highest surplus in over two years.

At this point, the RBA has given the market the go ahead on sending the pair higher. Todd Elmer, FX strategist for Citibank, said “by removing the threat of lower interest rates, there is less reason for investors to take RBA rhetoric on FX seriously because this is the most positive tool at policy makers’ disposal for impacting the exchange-rate.”

AUDUSD has trended nicely on the ascending trend line, and price action was able to close above the former resistance of .9065/60. A recent high was made, but price was not able to close above .9100, which would have strengthened the case for .9170.

Instead, price action fell back on price action support (former key resistance) of .9065/70, closing out the week at .9069. If US dollar strength has a continuation of momentum, the AUDUSD  could fall back further. Support is located at .9010, .8975 and .8820 (meeting with the trend line).

However, the lack of action from the RBA, traders will attempt to send the pair higher an retest .9100. Upside opportunities to .9175 and .9260 are possible.

1D Chart of AUDUSD

1D Chart of AUDUSD