By guest contributor Stuart Talman, Director of Australian Sales, XE.com.
Friday trade saw the Aussie dollar fall to new multi-year lows, breaking through previous resistance at 0.7040 and falling to 0.7021 – its lowest level since early 2016.
Risk aversion permeated throughout financial markets this past week – the sell-off in global equity markets the main talking point. US equity markets are now on track for their worst monthly loss since October 2008.
Price action has been whipsawed amid concerns over global growth created by China-U.S. trade frictions, the earnings outlook for US companies, US Fed rate increases and the ongoing Italian budget dispute. Nothing new here, but to now throw in equity market turmoil – this could lead to further pain across global markets.
Despite all of this, the Aussie dollar continues to defy gravity.
Having flirted with 70 US cents for the past couple of weeks, AUDUSD sliced through the key level at 0.7040 on Friday afternoon as the Chinese Yuan fell to its lowest level against the greenback since May 2008. This lead to another wave of risk aversion as Asian equity markets and the Aussie and Kiwi dollars were hammered.
But just as quickly as a sub 0.7000 move looked to be playing out, risk sentiment shifted noticeably throughout the European and US sessions with the Aussie dollar sharply reversing course, climbing almost 1% off its lows to close the week at 0.7087 down ~ 0.30%.
So the question on traders’ minds this week for the Aussie dollar – was Friday’s price action the start of a bullish reversal for the currency pair or are we likely to peel back over and take out the all-important 70 US cent mark?
Having swiftly rejected its 32 month lows and closed higher than Friday’s “open” at 0.7080 – AUDUSD price action has formed what technical traders refer to as a “bullish pin bar” which in some cases proves to be the starting point for a reversal to the incumbent trend.