AUD/USD to 78 Cents

AUD/USD to 78 Cents

AUD/USD to 78 Cents

The Australian dollar is prime for a deeper correction this coming week. The RBA hasn’t been shy about expressing their concerns about the strong currency, which poses significant risks for the currency at a time when the U.S. dollar is rebounding and commodity currencies are losing momentum. Although this week’s Australian economic reports were mostly better than expected with retail sales, building approvals, service and manufacturing PMI either increasing from the month prior or beating expectations, the Reserve Bank’s cautiousness and their lowered 2017 GDP forecast tells us exactly how the central bank feels about the economy. RBA Governor Lowe warned that a continued rise in the Australian dollar would depress prices and limit growth and employment. Their warning turned into action as the central bank cut their 2017 GDP forecast by 0.5% to a range of 2-3% due to the Australian dollar’s “modest dampening effect on the forecast for growth.” Looking ahead, we anticipate a deeper correction that could take AUD/USD as low as 78 cents. August is typically a challenging month for the currency, which dropped 10 of the past 12 Augusts.

Technically we have every reason to believe that AUD/USD peaked. While there’s some support at the 20-day SMA near 0.7880, once that is broken, it should be clear sailing down to July 17 & 18 low near 0.7790. AUD/USD has already fallen below the 61.8% Fibonacci retracement of 2008 to 2011 rally near 0.7950 so the risk is definitely to the downside for the pair. Only a move back above 80 cents would negate that.

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