Policy divergence weighing on AUD/USD

AUD/USD is just holding on to $0.7600 and the key release for the local currency this week will be the RBA minutes from the last meeting.

Source: Bloomberg

After the decision to hold, it seems the market is still expecting a very dovish set of minutes. Governor Glenn Stevens will then speak at a luncheon on Friday where he could give further insight on policy. Having said that, the gulf between US policy and Australia policy is only likely to widen should the two sets of policy updates play out in the way many are expecting. The FOMC meeting this week is expected to yield a more hawkish stance which could result in further US dollar gains. This would mean further AUD/USD weakness and could finally be the trigger to breaching last week’s lows in the $0.7560 region. AUD/USD has been in a downtrend since September when it was trading at around $0.9400 and a downtrend resistance line has capped any attempts to recover. This line currently comes in just above $0.7700 and I feel any recovery to that level will be used as an opportunity for fresh selling. Stops for this trade will have to be placed above $0.7800. Targets could initially be to $0.7560 with a view to reassess once this is achieved.


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