AUD/USD – 0.94 broken on RBA, Better Retail Sales

Today has been busy for AUD/USD. Prices were trading lower during early Asian session, continuing the downtrend that started since US midday. The reason for the initial decline is not really risk-aversion, as US session was less bearish as what the numbers tell us. Instead, the reason was more technical driven, with prices trending lower after the failure of Monday bulls to overcome the soft resistance of 0.934 – 0.935. Prices received some additional bearish push when lower than expected Chinese official Manufacturing PMI was released. The official numbers compiled by the China Federation of Logistics & Purchasing (CFLP) came in at 51.1, below the 51.6 expected but slightly better than previous month’s 51.0.

However, the weak overall bearish pressure did not last long, with prices quickly rebounding off the 0.93 round figure support even before the stronger than expected Retail Sales figures were released. Prices quickly punched above the 0.933 key resistance (see Daily Chart below), impairing short-term bearish pressure and set up the stage for a potential bullish overreaction to RBA’s rate decision. RBA did not disappoint, with one of the least dovish statements that we have seen in the past year.

RBA Governor Glenn Stevens notably omitted words that suggest that AUD is overvalued, and rehashed his usual argument that past easing efforts are still working through the economy. However, there is something extra this time round, with Stevens suggesting that the effects will last “for a while yet”, hinting that RBA does not see a need to drive rates or AUD lower.

Hourly Chart

AUD/USD rallied strongly following that, with prices currently testing the 0.94 resistance. Even if prices fail to break  0.94, the immediate short-term pressure will still be bullish as we’ve cleared the swing high of yesterday and that of last Friday, impairing the short-term bearish momentum and open up the potential for a re-test of 0.94 in the future as long as price stay above 0.935.

Daily Chart

Daily Chart is bullish above 0.933, and the recent decline since Mid September is now looking more like a short-term pullback with the rally from early September staying intact. Stochastic readings which were pointing lower previously has been tapered flat, and looks likely to perform a U-turn and cross the Signal line. Past precedence showed that prices would be able to  The immediate bullish target will be the recent swing high of 0.953. Should prices clear the aforementioned level, we could see a full bullish reversal in the works, with 0.98 providing interim resistance against a move towards bullish targets above parity.

Fundamentally, it is difficult to imagine AUD/USD able to maintain bullish momentum given that USD is expected to strengthen over the years due to the recovery of the US economy and due to the QE tapering. That is assuming that US doesn’t default on its debts on 17th October that is. As it is right now, market (and even rating agency S&P) believes that US lawmakers will come to their senses and not push the entire country’s financial credibility out of the window. Hence this is the reason why USD still remain generally well supported despite today’s impasse which has resulted in a partial shutdown of US Governmental operations. Without US defaulting, it is more likely that long-term US strength will pull through and drag AUD/USD under water once again given that Chinese economy and Australia’s own economic growth are both under threat.

More Links:
GBP/USD – Another 2013 High near 1.6250
AUD/USD – Finding Reasonable Support at 0.93 Level
EUR/USD – Resistance at 1.3550 Stands Tall Again

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