The Australian Central Bank’s meeting minutes showed once again that another rate cut is not imminent. This boosted AUD/USD and sent it to the lowest levels since mid June.
However, this 4 month high didn’t hold for too long and the pair retreated back down. Is it the false break before the real one? Or is this failed attempt? Despite the bullishness, here are 3 reasons that point to the latter option.
Here is how the break looks on the daily chart:
The RBA basically repeated the previous message: further rate cuts below the current 2.50% level are possible, but not imminent. Some were expecting an easing bias as time progressed, and a hint about a rate cut perhaps in February. When this didn’t happen, the Aussie rallied.
Why could the Aussie turn lower?
- RBA doesn’t like high AUD: One of the drivers to lower the rates back in May was the high exchange rate. This began the big fall of the Aussie. The RBA would like a weak Aussie, and its recent recovery was “noted” by the RBA, and they said they were uncertain if it would be sustained. So, the RBA wants and forecasts a lower value for the A$.
- US politics: Assuming a resolution of the political debacle around the debt ceiling and the government shutdown, the US dollar could further strengthen. While the Aussie, a natural risk currency, would normally benefit from less uncertainty, the recovering USD (that already hurt the euro), could also sweep the Aussie down.
- China trade: Over the weekend, China reported a surprising drop in exports. Chinese data is doubted by many, but trade balance is one of the hardest things to falsify. If China exports less, it also imports less. As Australia’s No. 1 trade partner, Chinese weakness could weigh on the Australian dollar as well.
AUD/USD moved as high as 0.9547 before retreating. the September high was 0.9528 and the break above this line sent the pair to levels last seen on June 19th.
The next resistance level appears at 0.9665, and support is at the round 0.94 level. For more, see the AUD to USD forecast.
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