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By Stuart McPhee

AUD/USD for Monday, August 11, 2014

The Australian dollar is trading in a very small trading range between 0.9270 and 0.9280 after dropping so sharply in to finish out last week from above 0.9350 down to a two week low at 0.9240. In the middle of last week the Australian dollar surged higher to a one week high near 0.9375, before easing back and then falling sharply. It had done well of late to cling onto the 0.93 level after its sharp fall last week which saw it move from above 0.9400 down to a seven week low just below 0.9300, and in more recent days receive solid support there too. A couple of weeks ago it was easing back below both the 0.9425 and 0.9400 levels with the former providing some resistance. The Australian dollar reached a three week high just shy of 0.9480 a few weeks ago after it enjoyed a solid period which saw it surge higher through the resistance level at 0.9425 to the three week around 0.9480, before easing back towards that level. The Australian dollar enjoyed a solid surge higher reaching a new eight month high above 0.95 at the end of June, only to return most of its gains in very quick time to finish out that week.

Since the middle of June the Australian dollar has made repeated attempts to break through the resistance level around 0.9425, however despite its best efforts it was rejected every time as the key level continued to stand tall, even though it has allowed the small excursion to above 0.95. After the Australian dollar had enjoyed a solid surge in the first couple of weeks of June which returned it to the resistance level around 0.9425, it then fell sharply away from this level back to a one week low around 0.9330 before rallying higher yet again. Its recent surge higher to the resistance level around 0.9425 was after spending a couple of weeks at the end of May trading near and finding support at 0.9220. The 0.9220 level has repeatedly reinforced its significance as it is again likely to support price should the Australia dollar retreat further.

Throughout April and into May the Australian dollar drifted lower from resistance just below 0.95 after reaching a six month high in that area and down to the recent key level at 0.93 before falling lower. During this similar period the 0.93 level has become very significant as it has provided stiff resistance for some time. The Australian dollar appeared to be well settled around 0.93 which has illustrated the strong resurgence it has experienced throughout this year. For the best part of February and March the Australian dollar did very little other than continue to trade around the 0.90 level, although at the beginning of March it crept a little lower down to a three week low below 0.89. Towards the end of March however, the Australian dollar surged higher strongly moving to the resistance level at 0.93 before consolidating for a week or so.

The battle between the inflationary effect of a lower Australian dollar and the opposite effect of slow wages growth over the coming few years is likely to end in a draw. Updated inflation forecasts from the RBA on Friday show the inflation rate staying inside the two to three per cent target band out to the end of 2016, as far out as the RBA's forecasts go. In its quarterly statement on monetary policy, the RBA tweaked its outlook due to the abolition of the carbon tax. But the underlying forces at work, and the end result, are much the same, leaving the RBA again predicting a "period of stability in interest rates". The RBA said the effects of the earlier depreciation of the Australian dollar, pushing up import prices, had boosted inflation over the past year. Those effects are still coming through. "By late 2016, three and half years on from the initial depreciation, these effects are likely to have largely run their course," the RBA said. In the meantime, inflationary pressures from within the Australian economy should be contained, thanks to "spare capacity in labour and product markets".

(Daily chart / 4 hourly chart below)

AUD/USD August 10 at 23:25 GMT 0.9276 H: 0.9279 L: 0.9274

AUD/USD Technical

S3S2S1R1R2R3
0.92600.92200.91000.94250.9500-

During the early hours of the Asian trading session on Monday, the AUD/USD is trading in a very small trading range between 0.9270 and 0.9280 after dropping so sharply in to finish out last week from above 0.9350 down to a two week low at 0.9240. The Australian dollar was in a free-fall for a lot of last year falling close to 20 cents and it has done very well to recover slightly to well above 0.95 again. Current range: trading right around 0.9275.

Further levels in both directions:

• Below: 0.9260, 0.9220 and 0.9100.

• Above: 0.9425 and 0.9500.

OANDA's Open Position Ratios

(Shows the ratio of long vs. short positions held for the AUD/USD among all OANDA clients. The left percentage (blue) shows long positions; the right percentage (orange) shows short positions.)

The long position ratio for the AUD/USD has moved back up strongly from its lowest level in over one year as the Australian dollar has eased right back below 0.93. The trader sentiment has changed to being in favour of long positions.

Economic Releases

  • 23:50 (Sun) JP CGPI (Jul)
  • 05:00 JP Consumer Confidence (Jul)
  • 12:15 CA Housing starts (Jul)
  • JP BoJ Publication of Monthly Report

*All release times are GMT

Source: AUD/USD - Trying To Recover Back Above Key 0.93 Level