View from the dealing floor.
Tarik Chebib works on IG’s dealing floor. Keep up-to-date with the latest forex prices:
2013 has been a difficult year for the Aussie Dollar. Starting from 104.00 it reached a high of 105.98 in early January before retracing to 102.00 in early March and reversing again to a high of 105.82 in mid-April.
From April until the beginning of August, AUD has continuously retraced to a level of 0.8850. It took six weeks for the AUD/USD pair to climb above 0.9290. Throughout June and July the pair struggled multiple times to break through this level making it a significant resistance level. As often seen in these cases, the fx pair retraced to this level at the beginning of October adding emphasis and ultimately making a significant support level.
Subsequently, the pair bounced higher to reach a five month high of 0.9758 later in October, before reversing again. Last week’s European Central Bank (ECB) decision to cut interest rates by 25 basis points combined with a much stronger non-farm payroll reading of 205,000 instead of 125,000, have added to the pressure and pushed the pair well below 0.9400.
Last week saw a change in sentiment towards the dollar with many anaylsts stating a possible continued period of strength for the greenback. This leads to renewed emphasis on 0.9290 as the next support in place. On Tuesday the pair shortly broke through the level, however, retraced higher and is currently around the 0.9300 mark. If 0.9290 is broken, the door may be open for a further move down. However, this depends if the dollar momentum can be sustained. After last week’s major news releases, this week there should not be any major surprises. An exception could be on Thursday when Ben Bernanke is scheduled to speak as well as his successor Janet Yellen. However, the tone of the Federal Reserve with respect to QE is not expected to change at this point in time and will likely stay this way until after March 2013.
Additionally, Australian exports have suffered significantly due to the expensive Aussie dollar. Hence, leaders in various industries, especially the ones reliant on exports, are struggling to meet their targets. For instance, the national automobile industry is suffering and set to lose further market share (currently at only 10%). GM just informed Holden that manufacturing in Australia looks dim, endangering over 1700 jobs directly and many more indirectly.
The pressure of the economy could be counteracted by policy changes of the Reserve Bank of Australia (RBA). Nonetheless, in comparison to other institutions around the world such as the ECB or Federal Reserve, the RBA is not known for intervention unless triggered by a major event.
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