Glenn Stevens spoke to the Australia Conference of Economists (ACE) and the Econometric Society Australasian Meeting. With the reason ramp up in Aussie strength, the governor of the Reserve Bank of Australia (RBA) was bound to remind the markets about the risks of an overvalued AUD. The reaction to these types of comments have always pulled down the Aussie at least in the short-term.
The AUD/USD started the 7/2 session dragged down by trade balance data showing a widening deficit due to slower exports. A strong AUD makes Australian exports more expensive to other countries. Stevens timing was perfect because the market has the trade balance data fresh in mind.
AUD/USD 4H Chart 7/3
The Aussie-US Dollar pair extended its losses as Stevens spoke about the overvalued AUD among other things. The 4H chart shows the pair pulled down below 0.94. It is testing a couple of rising trendlines that goes back to the end of May. The daily chart also shows a rising trendline that comes from January and the 2014-low of 0.8660.
If AUD/USD clears below the trendlines, and below 0.9350, 0.92 would be the next key level to monitor for support. However, if the pair fails to clearly break the trendlines, or pulls back above 0.9445 after doing so, then the AUD/USD is likely to continue its uptrend first to test the 0.9487 high, and then to fresh highs on the year.
Even before the break of the trendlines, the break below 0.94 puts the AUD/USD back to neutral mode, with the bearish attempt likely stall ahead of tomorrow’s Non-Farm Payroll data.
US Non-Farm Payroll
With the pair at a rising trendline, we can use the reaction to the NFP to get a clue to whether the AUD/USD will reverse its June rally. The NFP is forecast to be around 214K after a reading of 217K in May.
The USD has been on its back foot lately, so the market could be more sensitive to poor data. The ADP jobs data surprised to the upside, so traders are likely to expect in-line or better-than-expected data. This suggests a very strong NFP reading, something like 250K+ might be needed to give USD a jolt and push AUD/USD below 0.9350, which would clear June’s trendline, and a previous support pivot. In this scenario, the AUD/USD is likely turning bearish, with the 0.92-0.9210 area in sight.
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