The head of the Reserve Bank of Australia (RBA) Philip Lowe said on Friday that he prefers a weak Australian dollar. Investors assume that RBA may undertake some measures to devaluate the national currency. Will Australian dollar edge lower?
The currency surged 7% since the start of 2017, mainly on stronger iron ore and metals prices. They account for about 27% of Australian export. The prices of iron ore are being at their 2-1/2-year high now. They rose twofold since the start of 2016. AUD/USD may also fall in case of downward price correction. Now the rate of the RBA is being at historical low of 1.5%. This is much higher than in other developed countries. The next RBA meeting will take place on March 7, 2017, no rate change is expected. Previously the rate was cut in last August.
Theoretically, this may happen again if real economic indicators in Australia differ a lot from the target levels. RBA believes that inflation shall accelerate to 2-3% per year from the current 1.5%. Australian GDP shall rise 3% this and next year. Investors believe that the economy will grow 2.8% in 2017 and 3.2% in 2018.
Next Tuesday the current account balance and share of exports in GDP for Q4 2016 will come out. On Wednesday the Q4 GDP and on Thursday the trade balance for January will come out. These indicators may strongly affect the Australian dollar. Most forecasts are positive. The national currency may depreciate a lot in case the real indicators fall short of expectations.
On the daily chart AUD/USD: D1 continues being in the uptrend. Thus, to open the position the level of support shall be broken down through. The paces of growth have slowed down and several technical indicators have formed signals to sell. Prices may fall in case the negative economic data come out and in case the global iron ore prices retreat.
- The Parabolic indicator gives bullish signal. It may serve the additional level of support which has to be overcome.
- The Bollinger bands® have widened which means higher volatility.
- The RSI indicator is above 50. It has formed negative divergence.
- The MACD indicator is giving bearish signals.
The bearish momentum may develop in case AUD/USD falls below the last fractal low, the Parabolic signal and the lower boundary of the rising channel at 0.764. This level may serve the point of entry. The initial stop-loss may be placed above the last fractal high at 0.774. Having opened the pending order we shall move the stop to the next fractal high following the Parabolic and Bollinger signals.
Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 0.774 without reaching the order at 0.764, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Summary of technical analysis:
Position: Sell
Sell stop: below 0.764
Stop loss: above 0.774