AUD/USD poised for breakdown to new six-year low

<p>After initially rallying, AUD/USD (daily shown below) retreated on Monday to approach its new six-year low of 0.7370 that was established just last week. This […]</p>

After initially rallying, AUD/USD (daily shown below) retreated on Monday to approach its new six-year low of 0.7370 that was established just last week. This decline occurs after a Greek bailout agreement was reached over the weekend that contributed to an increased likelihood of a US rate hike this year and a corresponding strengthening of the US dollar. It also occurs nearly a week after the Reserve Bank of Australia (RBA) opted to hold its benchmark interest rate at 2%, a record low.

Furthermore, within last week’s RBA statement Governor Glenn Stevens affirmed that “the Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices.”

AUD/USD Daily Chart

 

With the potential for this further Australian dollar decline as well as the substantial probability of a Fed rate hike this year supporting the US dollar, along with a strongly prevailing downtrend for the AUD/USD currency pair, the outlook for AUD/USD remains both fundamentally and technically bearish.

Throughout June, the currency pair formed a large bearish flag pattern that was broken down in late June, pushing the currency pair into the current bearish continuation below the prior multi-year low of 0.7532 that was established in early April.

Having hit and dropped below its original downside support target of 0.7500 last week, AUD/USD could soon approach a further key target to the downside around the 0.7300 support level, with a possibility of a continued decline towards the 0.7000 psychological level.

Short-term resistance to the upside within the context of the strong bearish trend currently resides around the noted previous support level of 0.7500.

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