The Australian dollar has been under pressure of late as a combination of a weakly performing economy and significant monetary divergence has seen the pair trading at significantly depressed levels. Despite the concerted selling, the pair has seemingly found some support over the past few days as it now attempts to stage a sideways consolidation. However, the downside is beckoning and we might just see a breakdown of the short term trend line in the coming session.
In particular, despite the recent consolidation, the RSI indicator has continued to trend lower and currently remains within neutral territory on the hourly chart. In addition, price has recently declined below the 100-hour moving average whilst the 12 and 30 EMA’s have also bearishly crossed to the downside. Subsequently, there are plenty of technical indicators pointing to a downside breakout of the current sideways pattern in the coming days.
However, there is some contrary data from the stochastics indicator which has strongly entered oversold territory and may need a period of sideways price action to trade out of that level. Subsequently, this could point to a short period of continued consolidation prior to a sharp break lower.
From a fundamental point of view, the currency is likely to continue its slide considering, not only the divergent monetary policy, but also diminishing growth prospects for the antipodean nation. The recent interest rate cut by the RBA further cements the view that there is plenty of excess capacity within the Australian economy. In addition, despite the recent gains in commodity prices, iron ore and copper prices still remain in the doldrums which places Australian exports in focus. It also subsequently highlights the overall lack of GDP diversity within the island nation.
Ultimately, the long run bearish view of the Australian dollar remains the most statistically valid interpretation of the charts. The overall bearish trend line is likely to remain in place for some time soon and continue to impact and cap any gains that the AUD may find. However, the short term view is one of sideways consolidation before a break of the current trend line towards the 72 cent handle occurs. Subsequently, monitor the pair in the coming session but watch for Friday’s US retail sales figures which could impact the currency strongly.