By Chris Tedder, Research Analyst, Forex.com
AUDUSD’s break of the trading range which kept it hostage since August 2012 was quick but not painless. A market wide flood to the USD sent long aussie investors scrambling for cover, with AUDUSD smashing support levels with ease. The pair took out support at the bottom of its prior trading range, before annihilating parity. In fact, since the sell-off began AUDUSD has not been able to close in the green over a one-day period, but this may change today.
Last week price action bottomed out around 0.9710, before pushing higher today. This begs the question: is the tide turning for AUDUSD? We don’t think so. In fact, this may be the eye of the storm, albeit a weakening storm.
Overall, this may be a temporary break from an onslaught that may result in a more substantial correction for the world’s most traded commodity currency. That is not to say the pair will collapse altogether. Instead, a period of retracement may be natural, especially given the sheer amount of selling this pair has been subjected to.
However, we do think AUDUSD is due to fall further from here as the US economy strengthens and investors no longer see the need to seek out the safety and relative attractiveness of Australian bonds, especially if an anticipated peak in mining investment in Australia is more bumpy than the RBA currently expects. Admittedly, it may take a while for this bearish scenario to play out, thus we aren’t ruling out a push higher in the interim led by a possible correction in the USD.
From a technical standpoint, beyond 0.9710 the next key levels of support are around 0.9665 (prior support zone), 0.9580 and then the door may be open for a push towards 0.9385 (low since September 2010). On the upside we are watching 0.9870 (200day SMA) and then support zones around parity.
Data watch – there are some key data releases this week for the aussie, including:
· RBA meeting minutes – we aren’t expecting much of a prolonged impact from the already stale minutes
· China’s May private sector flash manufacturing PMI – expected 50.4, prior 50.4
· On the USD side of the equation, Fed meeting minutes, a testimonial from Fed Chair Bernanke, US existing home sales and unemployment data, and any QE3 chatter may be crucial for sentiment.