AUD/USD - Retreats To Key 0.93 Level

Includes: CROC, FXA, GDAY
by: Dean Popplewell

By Stuart McPhee

AUD/USD for Tuesday, August 26, 2014

For the best part of the last couple of weeks the Australian dollar has traded close and around the 0.93 level after spending the preceding few weeks drifting lower from near 0.95 and so it remains there now. Earlier last week it fell lower to below the 0.93 level level and moved towards the previous key level at 0.9220, before rallying well to return to the 0.93 level where it is presently consolidating. Over the last month or so, it has generally been sliding lower from close to 0.95 down to its present trading levels around 0.93. A few weeks ago the Australian dollar surged higher to a one week high near 0.9375, before easing back and then falling sharply. It has done well of late to cling onto the 0.93 level after its sharp fall which saw it move from above 0.9400 down to a seven week low below 0.9240. Several 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 month 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.

A former RBA official has claimed Australian houses are overvalued by up to 30%. Former Reserve Bank senior economist Jeremy Lawson has told The Australian Financial Review that Australia's housing market has left it vulnerable to major international economic shocks. Lawson, who is currently global chief economist of British fund manager Standard Life, told The AFR that Australia's property market is 20-30% overvalued. "[It is] reasonable to assume that future house prices will grow in line with real household ­disposable income as the commodity boom unwinds," Lawson told The AFR. But house prices have risen faster than disposable incomes, and Lawson argued that this meant housing was overvalued. "That would imply overvaluation of between 20% and 30%," Lawson said. Lawson was critical of the RBA, and said easy monetary policy and the reluctance to use macro-prudential tools had seen prices grow too fast.

(Daily chart / 4 hourly chart below)

AUD/USD August 25 at 23:15 GMT 0.9297 H: 0.9323 L: 0.9289

AUD/USD Technical

S3 S2 S1 R1 R2 R3
0.9260 0.9220 - 0.9425 0.9500 -

During the early hours of the Asian trading session on Tuesday, the AUD/USD is trading in a small range right under 0.93 after spending the last week trading around it. 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 0.9300.

Further levels in both directions:

• Below: 0.9260, and 0.9220.

• 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 settled around 55% as the Australian dollar has eased back down to the 0.93 level. The trader sentiment remains slightly in favour of long positions.

Economic Releases

  • 12:30 US Durable goods orders (Jul)
  • 13:00 US FHFA House Price Index (Jun)
  • 13:00 US S&P Case-Shiller Home Price (Jun)
  • 14:00 US Consumer Confidence (Aug)

*All release times are GMT