AUDUSD – Falls Strongly from Three Month High at 0.7550 Down to Key 0.73 Level

In the last two weeks the AUDUSD has fallen strongly 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, before continuing to decline back to another key level of 0.73. This two-week fall 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.

Given its range trading over the last few months, there are several levels that are poised to resume playing a role, which includes the current 0.73 level where it has found some support in the last day or so. 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.

If the AUDUSD continues to drop and move back through the key 0.73 level, 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.

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 0.73 continues to prop up the AUDUSD, then the key 0.74 level may resume its role and provide some resistance again.

RBA Leaves Rates as Historic Lows – Banks Move Independently

Having left the cash rate at its historic lows at its monthly board meeting, the Reserve Bank of Australia (RBA) 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. However this is of little comfort to many as in recent years, major Australian lenders have seen it fit to make interest rate moves independent of the central bank. This includes moves in the last week or so.

After the meeting, 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. Governor Lowe has repeatedly rejected predictions that he’ll need to raise interest rates next year in response to higher inflation.

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 after their last meeting, the central bank 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.”

ASX200 – Continues to Trade Around Key Level of 7400

In a sign of how well the market is moving in the last 18 months, 13 stocks from the ASX200 list achieved an all time high last week. Namely: ASX, AUSNET SERVICES, CHALICE MINING, COMMONWEALTH BANK, GRAINCORP, IDP EDUCATION, JAMES HARDIE, JANUS HENDERSON, MEGAPORT, PREMIER INVESTMENTS, RELIANCE WORLDWIDE, SEEK, TECHNOLOGY ONE

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 three months, Aristocrat Leisure and Macquarie Group have been the best performers. Commonwealth Bank and Afterpay join that group if you look over the last 6 – 12 months. 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.

In the last few weeks the ASX200 index has traded in a narrow range receiving some support from the current key level of 7400 level returning to a six week high near 7500. The ASX200 traded right around the 7500 level in a very tight range for several weeks two months ago and it is little surprise that this level is offering some resistance again. On multiple occasions in the last few weeks, as the index has approached that level it did struggle to maintain the momentum and did stall for several days before easing lower to near 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 around 7400. This is widely accepted as a trend reversal pattern, however its current movement higher in the last two weeks 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. The resistance around 7500 is the current obstacle that needs to be cleared although there are obvious levels, eg. 7200, ready to resume support for the index.