AUS/USD – 4H – Price Action in February

1. Heading into the March 1st Reserve Bank of Australia interest rate meeting the Aussie has been trading sideways following a rally (from 0.86 to 0.90) to start February.

2. Following that rally the pair has been in a mainly sideways pattern with support near 0.8970 and resistance at 0.9015. That resistance has coincided with the last several “peaks” in the Stochastic indicator.

3. Heading into the decision the pair was in overbought territory and running up against resistance once again.

A Look at Aussie and Gold

AUD/USD – 4H – Late December to Start of March

Spot Gold – 4H

Notice how strongly correlated the price action in the Aussie is when comparing to gold prices.

1. AUD/USD peaked at 0.93 in early January, followed by slide (corresponds with a drop in gold prices).

2. In early February, the pair finds support at 0.86 then rallies (gold bottoms at 1,060 and rallies to 1,120).

3. The second half of February features sideways consolidation with resistance at 0.9030 (gold consolidated with resistance at 1,120).

AUD/USD – Daily – Interest Rate Decision the Past 5 Months

1. RBA hiked rates in October, early November and late November, held rates steady in early February, and then hiked again to 4% during March 1st meeting. That is a tightening of 100 basis points or 1.0% over 5 months.

2. The 0.93 level held very well through that rate hike campaign while the pair formed lower lows.

3. Notice how the tops in Stochastic indicator correspond to the tops in price action.

4. Current move to overbought condition in Stochastic indicator has failed to reach the 0.93 level.

5. With RBA hiking rates now, could it mean a pause before next hike?

AUD/USD – 1H – Following the Release

Following the RBA decision to raise rates to 4%the pair had a volatile candle that was followed by a rally in the pair, which moves us above the 0.9015 area testing 0.9056 an area about 70 pips higher than before the release.

See the Statement by RBA Governor Stevens Here

The Australian economy has seen plenty of positive data recently including a job boom, as the economy has added 194,600 jobs in the past five months through January, and the unemployment rate is at an 11-month low of 5.3%. Prior to the RBA decision data showed retail sales up 1.2% in January from December. Expectations are for a strong GDP report which comes out on Tuesday evening NY time or Wednesday morning in Sydney. GDP is expected to gain 0.9%, boosted by a A$22 billion government stimulus program that concentrated on spending on roads and schools.

The RBA is likely to continue to hike rates as RBA Governor Glenn Stevens, in order to bring “interest rates closer to average” which may be another 75 basis points higher than the current rate.

In addition to the GDP report, this week will also bring data on capital spending and trade.

For further technical analysis of this pair see our AUD/USD Posts on FXTimes