AUD USD sinks to new six year low

AUD/USD (daily chart shown below) briefly touched a new six-year low under 0.7300 on Thursday that was just slightly below the previous 0.7256 trough earlier in the week. The currency pair closely approached the 0.7250 support level to the downside after a positive US GDP report on Thursday helped to lift the US dollar further. After touching the new low, AUD/USD quickly bounced but remained in consolidation just off its lows.

This new low is the latest culmination of a substantial slide from around the 0.7700 level that has plagued the currency pair for the past month, as the US dollar has persistently strengthened due to impending rate hike expectations. Also contributing significantly to the slide has been a plunge in commodity prices, especially gold, which are positively correlated with the Australian dollar and negatively correlated with the US dollar. From a broader perspective, AUD/USD has been trading within a clear bearish trend for over a year, since the 0.9500-area high in July of last year.

Since last week’s plunge below the 0.7300 support target, AUD/USD has consolidated in a relatively tight trading range above and below this 0.7300 level, with the noted 0.7250-area serving as range support. Although the currency pair touched a new low on Thursday, it was only marginally below the previous low, and therefore should not be considered a true breakdown as of yet.

With continued US dollar strength fueled by Fed rate hike expectations as well as progressively lower gold prices, AUD/USD could very well be poised for further significant losses. With key short-term resistance around the 0.7350 level, which is around the top border of the noted trading range, any further downside momentum below the 0.7250 range support could pressure AUD/USD down towards the 0.7000 psychological support target.