AUD/USD looking like a sell

I suggested on Tuesday that AUD/USD could squeeze to 0.9572 on a daily close above the 38.2% retracement of the October to November sell-off at 0.9456. 

However, the Australian dollar bulls have failed to push the pair significantly higher and good supply has been seen around 0.9440.

Technically the pair looks like it wants to trade lower from here, although my preferred stance would be to sell rallies with any moves to 0.9350; a level I feel could be a good entry to establish short positions. Support is seen at 0.9255 (the 23.6% retracement of the year’s high to low) with the 19 August pivot at 0.9234; a level I’m also watching.

Fundamentally, the US dollar side of the equation continues to look strong, with yesterday’s Federal Reserve minutes re-enforcing the view that a December tapering exercise can’t be ruled out. St Louis Fed president James Bullard put the firm emphasis on the 6 December payrolls report, by suggesting that a positive performance would ‘increase the probability for a December taper’. There was a fairly strong move in US yields, with the ten-year pushing up nine basis points to 2.79%, although the spread against Australian bonds remains unchanged.

On the AUD side a weak Chinese HSBC flash PMI report (50.4 vs. 50.8 expected) saw sellers emerge in Asia, as there is a growing trend of policy makers’ efforts to curb credit growth having an effect on Chinese manufacturing. What’s more, the forward-looking new exports’ sub-component grew at a slower pace of expansion at 51.0 (down from 51.5).

Royal Bank of Australia governor Glenn Stevens spoke earlier this morning, with the most notable point (causing some concern from AUD longs) being that the RBA remains ‘open-minded’ to currency intervention. This is interesting, as recent statistics show that the RBA sold 330 million worth of AUD in the market during October. Most of the selling took place as a result of strong foreign reserve accumulation (which of course means selling on the AUD) and while this sort of activity takes place regularly, it’s the levels of selling that is making traders talk.

We’ve seen increased rhetoric from the RBA in recent times in talking down the AUD; however the question many are asking is whether the RBA is looking to take physical action. This could well be the case, although I am personally a touch sceptical, as A$330 million is a very small amount in central bank terms and unlikely to cause a sustained move.

Spot FX AUD/USD chart
Spot FX AUD/USD chart

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