AUD/USD Currency Pair Likely to Decline from Current Level of 0.7510

Australian Dollar - AUDBased on the mild hawkish tone of RBA in the monetary policy statement issued last month, we speculated a rally in the currency pair AUD/USD with entry and exit near 0.7380 and 0.7510 respectively.

In addition to this, we had also expressed our eagerness for investing in the call option. As forecasted, both the trades resulted in profits. However, there are a number of reasons in believing the currency rally to reach the exhaustion limit and the same is discussed below.

In the short term basis, we expect the currency pair AUD/USD to dip low from the current level of 0.7510.

Recently, a mid-year report is released by Morgan Stanley on the outlook for the Australian Dollar. In the report, it is stated that the Australian dollar is likely to dip low over the next one and a half year because of decline in unprofitable banks, poor inflationary pressure, weak labour market and commodity prices.

South Australia’s Underemployment Rate Soars

As China has moved to a service-oriented economy from manufacturing, Australian exports will see a downturn. In addition to this, iron ore outlook is very poor as it is struggling to hold near $60 per tonne. The Australian Fiscal Budget has outlined infrastructure spending plans which in turn would have a good impact on the economy. Banks will be levied with additional tax so as to tackle the expenses. The costs could be passed to the customers likely and this might lead to further decline in the overall consumer spending.

Based on these factors, the RBA will be hard pressed for holding the interest rates unchanged in the medium term. On the contrary, US Fed is expected to raise rates for a minimum of 2 times in this year. The odds of hike in rate are very high for the month of June. The ECB in Europe is expected to a taper the asset purchase program by the end of 2017. Hence, the attractiveness of the Australian dollar as a trade currency continues to decline. Based on the above mentioned macroeconomic issues faced by Australia and the probable hike in the rate by Fed in June, we can definitely expect the currency pair AUD/USD to diminish in the short term.

If you have a close look at the image below, you will come to see that the stock has formed a “Bearish Gartley Formation“. In addition to this, the historic price chart shows a major resistance level in the stock at 0.7540 levels. Hence, a price revision towards the downside is likely to be possible.

AUD/USD Pair: June 8th 2017

AUD/USD Pair: June 8th, 2017

As a currency trader, you can open a short position in the currency AUD/USD pair near 0.7540 and place the stop loss order above 0.7650. If the currency pair moves down as predicted, the profits can be booked near 0.7380.

All the traders are recommended to invest in a put option when the currency pair is trading near 0.7540. Also, the expiry date should be somewhere around June 16th.


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