The Australian dollar plunged against all of its major trading partners after the Reserve Bank of Australia (RBA) lowered its benchmark rate 25 basis points (bp) to a record low 2.75%. Slow growth in the global economy and low inflation may leave the door open for the central bank to cut again.
FUNDAMENTALS
Australian employment is well behind last year’s pace and further headwinds in China may increase the unemployment rate. The RBA expects the peak in the level or resources sector investment to happen this year. Concerns of the strong Aussie dollar remain despite the recent weakness from the prior meeting.
LOOK OUT BELOW
With another 25bp expected before year-end, the Australian dollar may be poised for further weakness.
ON THE CROSSES
The Aussie/Canada (AUDCAD) daily chart shows that price in early April respected key resistance in the 1.07 level and formed a double top which highlights the end of the bullish run from last fall.
STRONGER LOONIE AHEAD
The direction bias from a technical perspective continues to be bearish as the fundamentals very much support a stronger loonie, the nickname for the Canadian dollar and a weaker Australian dollar.
KEY LEVELS TO MONITOR
A subsequent daily close below the 1.02 level would provide a bearish indication that price may continue to fall towards key support at the 1.0120 level, which is just above the 78.6% Fibonacci retracement of the 2012 October low to the 2013 March high move.
If price however recaptures, the 1.0242 level after breaking down below the 1.02 level, traders may look to see further consolidation which could target the 1.03 level.
