The big surprise from the Fed, with the decision NOT to taper QE, turned out very well for the Aussie – a classic “risk currency”. AUD/USD is at a 3 month high.
AUD/USD soared not only above the previous highs, but also above the round 0.95 level. The pair stopped exactly at high resistance at 0.9528, a level which provided support in late May. Will the surge continue? Will the nice technical behavior continue as well?
This is how it looks on the daily chart:
Risk on in the land down under
The decision not to reduce bond buys means more US dollars will be printed into US bonds. Investors searching better short and long term yields will also pour into Australia: where long term and short term interest rates are high, and the credit rating is a perfect “9 As”.
In addition, money flows into commodities, which Australia exports. Even though the mining sector boom is probably over, existing projects still provide lots of income for Australia, and higher prices also help.
The RBA does not like a strong Aussie and could eventually react with a rate cut. However, this could take time and in the meantime, the echoes of the QE tapering could be stronger than future action by the local central bank.
AUD/USD big lines
0.94, which provided some support back in June, was easily broken and now serves as week support. Below, 0.9344 is extra support. It worked as resistance in July.
Looking up, the aforementioned 0.9528 was support in late May when the pair was making its way down. Further up, 0.9595 gave some support in May and is minor resistance.
Stronger resistance is at 0.9660 – a historic line of both resistance and support, and capped the pair in June. The next line is already far above: 0.98, which capped the pair during the downfall as well.
For more, see the AUDUSD forecast.