Despite holding cash rate at 3.00% as expected, AUD/USD traded lower, breaking 1.04 support once more due to the accompanying statement. In the statement, Glenn Stevens mentioned that downside risks for global growth “has abated’, with US “has so far avoided a severe fiscal contraction” and China “stabilized at a fairly robust pace”. Risks of Europe Crisis have also “lessened considerably”. Despite all the good signs, Glenn Stevens remain cautious about Australia’s economy stating that return of strong growth is unlikely, hinting that RBA is willing to cut rates if the need arises.
Price rallied initially, pushing up close to 1.046 due to traders speculating on a rate cut closing their positions based on the headline rate. Price began to collapse after the statement was published, breaking 1.044 ceiling, and making short work of 1.04. Current prices show 1.04 resistance holding, but now is too early to tell as current candle still have a long way to go (approximately 50 more mins). Stochastic reading has also formed a new peak after the quick sell-off, but we’re still some distance away from hitting Oversold region.
The question we must ask is whether this selling has fully digested the possibility of further rate cuts within the next few months. A good gauge would be this Thursday’s Aussie Employment Data – should price remain flat/bearish despite a strong print, we could see AUD/USD potentially continue its bear trend lower as market slowly push Aussie lower based on rate cuts expectation. The converse is true as well; a weaker print that fails accelerate bearish momentum can be interpreted as exhaustion from overreaction to the current dovish statement.
AUD / USD – Recovering Well from Support at 1.04
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