Australian Dollar Analysis and Talking Points
- AUD/USD | US Dollar Capitulation Boosts Aussie
- RBA QE is a Material Risk to the Australian Dollar
- Resistance Situated at 0.6660-70
AUD/USD | As US treasury yields plummet with the 10yr falling to a record low 0.77% (at the time of writing), the US Dollar has continued its precipitous decline. In turn, despite the RBA cutting interest rates to 0.50% amid the expected hit to growth from coronavirus, the Australian Dollar is on course for its strongest week since July 2017, gaining over 2% against the greenback. However, we see caution in chasing the currency higher, given that price action is likely to remain dictated by risk appetite, which remains tilted to the downside. Alongside this, we highlighted last year that with Australian interest rates heading towards the effective lower bound (0.25%), there is a material risk that the RBA is heading towards QE. Equity markets remain fragile leaving the Aussie particularly vulnerable to low yielders (JPY, EUR, CHF).
| Change in | Longs | Shorts | OI |
| Daily | -4% | -10% | -6% |
| Weekly | -1% | 25% | 3% |
On the technical front, despite the bounce from 0.6600 with risks of more unconventional measures from the RBA we see risks in chasing AUD higher and thus we expect gains to be relatively short lived. First notable test of resistance is situated at 0.6660-70, which will provide an opportunity to see how strong this relief rally is for the Aussie. Failure to make a firm break leaves the currency vulnerable to a retest of the 0.6600 handle.
AUD/USD Vanilla Options: 0.6600-05 (730mln)
Implied Weekly range (0.6550-0.6730)
| Support | Resistance | ||
|---|---|---|---|
| 0.6550 | - | 0.6660-70 | Prior Support |
| 0.6500 | - | 0.6730 | Weekly High |
| 0.6288 | Mar’09 Low | 0.6750 | - |
AUD/USD Price Chart: Weekly Time Frame
Source: IG Charts
--- Written by Justin McQueen, Market Analyst
Follow Justin on Twitter @JMcQueenFX
