(Technical Analysis) AUD/USD Gains Momentum Amid China Stimulus and RBA’s Steady Rates
Market Analysis
The Australian dollar (AUD) is in its third consecutive week of gains, bolstered by the recent announcement of a significant stimulus package from Beijing and the Reserve Bank of Australia’s (RBA) decision to keep interest rates steady. The AUD/USD pair climbed to 0.6883, marking its highest level since 14th July last year.
China Stimulus and RBA Decision
The AUD/USD currency pair has seen sustained upward momentum following the unveiling of a major stimulus by China, aimed at reviving its struggling economy. A key component of this stimulus involved the central bank reducing the required reserve ratio for banks by 0.50%, effectively freeing up approximately $142 billion for new lending.
This move led to an immediate uptick in the prices of crucial commodities such as iron ore and coal, as market participants anticipated increased demand. However, some analysts have expressed concerns that the stimulus may have been introduced too late to have the desired impact.
A stimulus package from China is generally perceived as positive for Australia, given that China is its largest trading partner.
Further supporting the AUD, the RBA opted to maintain its interest rates, signaling that cuts are unlikely shortly. In a statement, Governor Michele Bullock highlighted that, unlike previous meetings, the RBA did not even consider rate hikes. This suggests that the RBA could be one of the last major central banks to reduce interest rates, in contrast to others such as the Federal Reserve (Fed) and the Bank of England, which have already started cutting rates.
Meanwhile, in the United States, a report from the Conference Board revealed that consumer confidence has plummeted to its lowest level in three years, with ongoing concerns about the labour market. The index dropped to 98.7, falling short of the predicted 103.5. This data reinforces the Fed’s stance that the labour market remains a significant challenge, suggesting further rate cuts could be on the horizon.
AUD/USD Technical Analysis
The rally in the AUD/USD pair gained further traction following the RBA’s interest rate decision. It broke through a key resistance level at 0.6821, the high reached on 29th August, negating a previously forming double-top chart pattern.
The pair has now moved above the 50-day moving average, as well as a significant resistance level at 0.6871, the high from December last year. Additionally, it has surpassed the ultimate resistance level represented by the Murrey Math Lines.
Both the Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI) are pointing upwards, with the Average Directional Index (ADX) holding above 20, indicating a continued uptrend.
As a result, it is likely that the pair will continue to rise, with bullish traders targeting the next key psychological level of 0.7000.
Trading Strategies
Bullish View:
- Buy the AUD/USD pair.
- Set a take-profit target at 0.7000.
- Place a stop-loss at 0.6800.
- Timeline: 1-2 days.
Bearish View:
- Sell the AUD/USD pair.
- Set a take-profit target at 0.6785.
- Place a stop-loss at 0.7000.