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James Hyerczyk
Australian Dollar and Coins

The Australian Dollar hit its lowest level in ten years early Wednesday after a surprisingly aggressive 50-basis point rate cut by the Reserve Bank of New Zealand (RBNZ) opened the door to speculation of an earlier than expected rate cut by its Australian counterpart. After hitting a low of .6677 earlier in the session, the Aussie snapped back to regain almost half of its earlier losses before settling into an intraday range.

At 09:22 GMT, the AUD/USD is trading .6728, down 0.0030 or -0.44%.

Bets the Reserve Bank of Australia (RBA) will ease policy jumped after the RBNZ rate cut. Traders are now pricing in a 70% chance Australia’s central bank will cut by 25 basis points in September. Earlier forecasts had October pegged for a rate cut.


Daily Technical Analysis

The main trend is down according to the daily swing chart. There is no visible support with the next major downside target the March 3, 2009 main bottom at .6285.

The main trend will change to up on a move through .7082. This is highly unlikely. However, the AUD/USD is down 13 sessions from its last main top which puts it well within the window of time for a closing price reversal bottom. The formation of this pattern won’t change the trend to up, but it could trigger a meaningful 2 to 3 day counter-trend rally.

This pattern is important to both trend and counter-trend traders. For trend traders, it will allow you to tighten up your trailing stops in order to shore up more profits from your short sales. To counter-trend traders, this pattern will be the next best thing to getting lucky and picking a bottom.


Daily Technical Forecast

Based on the early price action and the current price at .6728, the direction of the AUD/USD the rest of the session is likely to be determined by trader reaction to yesterday’s close at .6759.

Bearish Scenario

A sustained move under .6759 will indicate the presence of sellers. They will be trying to defend the trend against a closing price reversal bottom. If successful, then the selling could resume with the first target today’s intraday low at .6677. Taking out this level will bring the AUD/USD closer to the main bottom at .6285.

Bullish Scenario

Overtaking and sustaining a rally over .6759 will signal the presence of buyers. This could trigger a dramatic acceleration to the upside with the first target angle coming in at .6822. Look for sellers on the first test of .6822, but if it’s overcome then this will indicate that short-covering and aggressive counter-trend buying could drive the AUD/USD into at least .6880 over the near-term.

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