The Australian dollar has come under renewed pressure of late following comments from official institutions expressed the view that the level of the currency is high. The International Monetary Fund (IMF) Article IV consultation concluded that the AUD “which despite the depreciation since April still looks overvalued by around 10%, will continue to act as a headwind to overall growth.” Furthermore, the IMF said that Australia should keep monetary policy accommodative.
The Reserve Bank of Australia (RBA) has called the AUD “uncomfortably high”, saying that “a lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy.” RBA Governor Stevens has repeatedly called for a lower AUD, with his most recent comments coming last night in a speech discussing the last 30 years of having a floating exchange rate. Stevens said that the Australian dollar is above levels the Bank would expect to see in the medium term. Markets focused on his comments that the RBA is “open-minded” on currency intervention. Intervention by the central bank does not appear imminent at this time as the Governor indicated that the Bank has not been convinced that intervening would be effective so far.
For now, rhetoric has been a factor limiting AUDUSD strength and has weighed on the currency. However, in our view, the impact of continued rhetoric may be diminished without action to back it up. The increase in US treasury yields have also been a key factor in boosting the USD against the AUD. Technically, AUDUSD broke below a notable support level today around the 0.9270/80 area. The 100-day simple moving average (SMA), daily ichimoku cloud base, and head-and-shoulders neckline converge in this zone. A daily close beneath here would suggest the potential for a continued decline towards prior lows. If AUDUSD rises back above the convergence of technical levels around 0.9270/80, the pair may rebound towards the convergence of the 21 and 55-day SMA’s, currently around 0.9425/35.
Source: eSignal and FOREX.com