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AUD/USD – Gunning for Fresh 4 Year Lows?
The Australian dollar was one of the worst performing currencies today, falling more than 1% versus the greenback ahead of the Reserve Bank of Australia’s monetary policy announcement. The last time we heard from the RBA was on October 7th and at that time, the central bank expressed concerns about the high level of the currency. Considering that A$ was the only currency to appreciate against the greenback in the month of October, this concern would not have eased. In fact, with inflation slowing in the third quarter, employment declining and home loans dropping, the RBA has every reason to sound more dovish, which would not only be negative for the Australian dollar but also put the currency’s 0.8643 four year low at risk. However if most of the statement remains unchanged and the RBA sounds comfortable with recent developments in Australia and China, the 0.8643 low could hold. Aside from the RBA meeting, retail sales and the trade balance could also affect how AUD/USD trades.
Taking a look at the monthly chart of AUD/USD, the 4 year low of 0.8643 is looking extremely vulnerable especially after Monday’s big move. However having tested this level on numerous occasions, significantly weaker data or an intensification of concerns about the level of the currency or the global economy could be needed for this level to break in the next 24 hours. Beyond that, the market’s appetite for U.S. and Australian dollars will be key. A break below 0.8643 opens the door for a move down to the 50% Fibonacci retracement of the 2008 to 2011 rally at 0.8550. If this level holds, AUD/USD could trickle back up towards the top of its month long range near 89 cents.