AUD/USD likely poised for downtrend continuation towards 0.7000

<p>AUD/USD has been falling in a sharp downtrend for the past month from its late April high above 0.7800. The initial drop was accelerated after […]</p>

AUD/USD has been falling in a sharp downtrend for the past month from its late April high above 0.7800. The initial drop was accelerated after a surprisingly low Australian inflation (CPI) reading was released near the end of April and then was followed up in early May by a Reserve Bank of Australia interest rate cut to a record low 1.75%. Subsequently, the central bank lowered inflation forecasts and hinted at further potential rate cuts.

At the same time that the Australian dollar has been heavily pressured this month, the US dollar has been in recovery mode as increased anticipation of a near-term rate hike by a more hawkish Federal Reserve has fueled a rebound in the US dollar. This, in turn, has helped prompt a drop in gold prices, with which the Australian dollar is often positively correlated.

With these factors affecting both the Australian and US dollars in recent weeks, there should be little surprise that the AUD/USD has been in such a sharp slide this month. Since early May, this slide has led to strong breakdowns below major support levels, including: the 50-day moving average, an uptrend channel extending back to January’s multi-year lows near 0.6800, the key 0.7500 and 0.7350 support levels, and most recently, the 200-day moving average. The latest culmination of this precipitous decline has seen AUD/USD reach down to hit its key downside support target at 0.7200, around which the currency pair has fluctuated for the past week.

Looking ahead, the persistent contrast between an increasingly dovish Reserve Bank of Australia and a seemingly more hawkish Federal Reserve is likely to lead to a continuation of both the short-term and long-term downtrends for AUD/USD. Key risk events on the US side will be presented on Friday, when US GDP data will be released and Fed Chair Janet Yellen will be making a speech. With any further US dollar strengthening in the event of better-than-expected GDP data and/or a hawkish Yellen speech, a decisive breakdown below 0.7200 could occur, in which case the next major downside target is at the 0.7000 psychological support level.

AUD/USD Daily Chart


Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.