In Australia, being called a “battler” is usually a compliment, comparable to “salt of the earth”. Battlers “take arms against a sea of troubles” without complaint, while maintaining a laid back sense of humour. So when Aussie currency traders call the local currency “the Little Aussie Battler” they mean it affectionately, while also acknowledging trouble on the way. The daily chart suggests further trouble is imminent.
Despite the ECB’s stimulus package, and potential global demand benefits, AUD/USD is trading at five year lows. The chart shows it breaking below previous lows around 0.8035, and the MACD has crossed downward. The pair may be about to resume its downtrend, and there is little technical support in sight.
This gels with the market calendar. On Friday January 30, Australian CPI data is due. Analysts are expecting a collapse in the core readings to around 2.1% - just above the Reserve Bank of Australia’s lower band for inflation at 2%. Combined with the ECB stimulus, and recent rate cuts by central banks in Canada, India and Denmark, there is a growing chorus for a rate cut from the RBA at its February meeting.
While I disagree that the RBA will cut (particularly given recent employment strength) it’s likely the AUD will remain under pressure until the decision is delivered on Tuesday February 3.
While an entry point (at market while AUD/USD is below 0.80350) and stop loss (above 0.8035) are clear, targets are a little more problematic. No price action at these levels for five years means traders could look at projections based on the down leg from 0.88 to 0.81, or using a trailing stop loss order of say 35 points. Whichever choice is made, exiting before the RBA announcement on Feb 3 (Feb 2 in the USA) may be prudent in case the RBA confounds the choristers.