Australian Dollar Under Stress: Pound Sterling in Another Day of Gains vs AUD

At the time of writing the forex markets are undeniably bearish on the Aussie:

• The pound to Australian dollar exchange rate (GBP/AUD) is at 1.8342, the pair rose by over a percent on Thursday.
• The euro to Australian dollar rate (EUR/AUD) is reversing recent gains and is seen at 1.4540.
• The Australian to US dollar exchange rate (AUD/USD) is at 0.9355. (Note: The USD has surged today on the release of NFP data - markets are betting the Fed will have to raise interest rates sooner than expected, thus eroding the interest rate advantage Australia currently enjoys over the US).

PS: If you are holding out for higher rates, or want to lock in current rates for protection against further falls, we suggest setting up stop order / option with an independent FX provider. Learn how here.

Another bad day for the Aus dollar

The AUD has taken a fresh hammering againt the British pound (GBP) in global FX after Reserve Bank of Australia (RBA) Governor Stevens made bearish remarks about the strength of the currency in Perth.

AUD/USD had reached its highest level in eight months earlier in the week but is now in retreat as we had forecast.

Stevens stated that the Australian dollar was overvalued by more than just a few cents, adding that that many investors were underestimating the possibility of a significant fall in the commodity currency.

Ironically, at the same time, the governor said that he doesn’t believe in jawboning.

There can be no doubt that the RBA does want the Australian dollar lower and markets are selling the currency against the pound sterling as a result.

Data fails to aid the dollar's cause

AUD/USD tumbled around half a cent on the back of today’s comments from the RBA. Shortly thereafter, disappointing retail sales data (-0.5% vs. 0.0% expected) out of Australia for May threatened to send the Aussie into another tailspin. But AUDUSD was prote

cted by strong Australian building approvals figures for May. Building approvals jumped an impressive 9.9% m/m, after falling a revised 5.8% in April.

This was significantly more than the 3.2% increase that the market was expecting for May.

Commenting on the currency's woeful performance is Chris Tedder at Forex.com:

"The combination of yesterday’s disappointing Australian trade figures and today’s jawboning from the RBA has quickly pushed AUDUSD away from its yearly high. If the pair continues to fall – eyes on tonight’s NFP data – then we are going to be watching its 55day SMA and trend line support.

"On the upside, the new created yearly high is going to be a tough resistance level to break in the short-term, thus we tend to favour more downside in the near-term."

We note that the RSI on the pound to Australian dollar exchange rate is reading at 63.3 on the daily charts at present.

A reading of 70 and above is considered to indicate overbought conditions so there is some way to go before we would call a relief rebound in the AUD.

Nevertheless, those watching this market should keep the possibility of a relief rally in mind after three solid days of gains in GBP/AUD.

US Non-Farm Payroll data to set the scene

The big event on the horizon for global FX is the release of the much-watched US Non-Farm Payrolls.

Commenting on this and the reaction in the US are Swissquote Research:

"The US dollar came broadly in demand post-ADP release in New York yesterday. The ADP employment report surprised on the upside, the June report showed that the US economy added 281’000 new private jobs versus 205K expected & 179K a month ago.

"The June unemployment rate and nonfarm payrolls are due today (US closed on Friday). The consensus is 215’000 new nonfarm jobs in June versus 217’000 added through May."