AUDUSD – Eases from Three Month High at 0.7550 Down to Key 0.74 Level

In the last week or so the AUDUSD has eased from resistance at the three-month high around 0.7550 back down to another key level of 0.74 where it was supported to finish last week. This retracement follows several weeks of a strong rally which saw the AUDUSD not only move back up through resistance at 0.73 but continuing higher to the 0.74 level and moving through to the three-month high. After hitting resistance at 0.7550 a few weeks ago, its rally did slow down as it rallied back up to 0.7550 to run into resistance again forcing it lower.

Although now less likely, should it bounce off the support at 0.74 and move through the resistance at 0.7550, you would expect the 0.78 level to play a role again having influenced the AUDUSD as much as it did earlier in the year across many months. If the current support at 0.74 fails, then the key 0.73 level is likely to step in and provide some support again.

Given its range trading over the last few months, there are several levels that are poised to resume playing a role including the current 0.74 level but also 0.73 and 0.71, now that the AUDUSD has eased away from the three month high at 0.7550. The 0.73 level first gained attention in August when for several weeks it propped up the AUDUSD and kept it within a range between it and 0.74. The price movement over the last two months has reversed the medium-term trend after it pushed through 0.7450 and moved through to the three-month high.

If the AUDUSD does reverse strongly and move back through 0.74 and 0.73, you could expect the 0.71 level to provide some support after it reversed at that level in August. Failing that, the round number of 0.70 is more likely to step in and provide support to the AUDUSD.

RBA Leaves Rates as Historic Lows

As no surprise to anyone, last week the Reserve Bank of Australia (RBA) kept the cash rate at its historic lows at its monthly board meeting. However they did change their tune ever so slightly as they left the door open to a rate rise in 2023, having previously said they couldn’t see rates rising until 2024. After the meeting last Tuesday, RBA Governor Philip Lowe said that inflation had picked up earlier than expected but in underlying terms was “still low”. “The board is prepared to be patient, with the central forecast being for underlying inflation to be no higher than 2½ per cent at the end of 2023 and for only a gradual increase in wages growth,” he said.

They are also still very conscious of the red-hot property market in Australia with increasing “household indebtedness” as people continue to question why the central bank isn’t playing a role in maintaining a lid on soaring prices and curbing borrowing. The central bank has been reluctant to comment on housing adopting the approach that they have a bigger economic picture to manage.

However last week they did make a comment on the scenario of increasing rates quickly and the impact on property prices. “Price falls could be widespread if interest rates were to increase sharply due to unexpected inflation or rising risk premiums,” the RBA said in its Financial Stability Review released last Friday. “Sharp price falls could cause greatest harm to the financial system for assets where leverage is common, notably residential and commercial property.”

However, “while there has been a slight moderation in housing turnover and housing price growth as a result of the lockdowns, recent data on commitments suggest housing credit growth is likely to pick up further” the RBA added.

ASX200 – Continues to Trade Around Key Level of 7400

A quick scan through the ASX Top 20 stocks will show a handful of stocks that have performed very poorly this year, while others have shone. In the last week, Aristocrat Leisure, Commonwealth Bank and Macquarie Group have all achieved all time highs on the back of very strong up trends. Aristocrat is also the best performing stock over the last six and 12 months. If you look outside into the top 50, ASX joins that list.

Continuing to drag the chain are the miners in BHP, Rio Tinto and Fortescue Metals, which are all trading at close to 12 month lows. It makes you wonder how much higher the S&P/ASX200 index would be if it wasn’t for these few stocks.

In the last week or so the ASX200 index has reversed well off the 7300 level returning to a one month high near the key 7500 level. The ASX200 traded right around the 7500 level in a very tight range for several weeks two months ago and that level is likely to offer some resistance again. As the index approached that level last week it did struggle to maintain the momentum and did stall for several days before easing lower to 7300.

Over the last few months the ASX200 index has been loosely forming a head and shoulders pattern with the head above 7600 in August and the two shoulders near 7400. This is widely accepted as a trend reversal pattern, however its current movement higher in the last week is threatening to collapse the pattern.

Several weeks ago, the ASX200 enjoyed solid support from the 7200 level where it propped it up for around two weeks and this may be called upon again should the index continue to ease lower. The volatility in the ASX200 index (seen in the chart below as the red line) has decreased in the last few weeks returning to a longer-term average

All things considered, the index has moved very strongly over the last 12 months, with recent signs that it could easily return to its recent all time high and threaten to move higher.