May 18 2013

May 18, 2013 (By Marcus Holland of – The Australian dollar has experienced a colossal collapse during the past two weeks declining more than 3 big figures this week on top of last week’s 3 big figure decline.  The currency pair has sliced through par which it has remained above since moving through it in June of 2012.  The technical picture is bleak, and managed money will have likely exited long positions.

The run on the Aussie began after the central bank cut its benchmark interest rate by 25 basis points and downgraded its growth figures.  The currency pair received a temporary respite when the government released solid employment figures.  This respite was short lived as negative momentum gains a foot hold putting the currency on the defensive.

The weekly technical picture shows the decline of the currency pair toward support levels.  The AUD/USD could easily test the .9580 region before testing the 2011 lows near .9390.

The daily technical picture is impressive as the currency pair has moved lower on seven consecutive trading days.  Earlier in the month of May, the 20-day moving average of the AUD/USD crossed below the 50-day moving average which reflects a negative short term trend is now in place.

The daily MACD (moving average convergence divergence) index is printing in negative territory and the trajectory continues to point to further negative price action.  The RSI (relative strength index) is printing near 18, which is well below the oversold trigger of 30 and could forecast a rebound in the currency pair.

Despite the Australian dollar’s decline in recent weeks, there has been interest in long position by hedge funds in Aussie futures contracts.  According to the latest CFTC report for the week ending to May 7, the gross long Australian dollar position was 61.5k contracts.  This weekend’s commitment of traders report is likely to show a change given the large reducing in the Aussie currency futures contract.

Next week (the week beginning May 20, 2013), there are a number of data points that could alter the outlook for the AUD/USD.  On Tuesday the 21st, the RBA will release its meeting minutes.  This will give investors a look inside the bank and attain a better idea of their potential dovishness.  On Wednesday investors will view consumer confidence and on Thursday the government will release consumer price information.  The CPI will likely be the biggest market mover, a low level of inflation will allow the Aussie to continue to move lower.

The RBA during its last meeting when it cut interest rates by 25 basis points downgraded its outlook on GDP, which they believe will likely move toward the 2.5% level in 2014.  The trajectory of growth seems to be holding up but the recent decline in the outlook for China, along with the decline in commodity prices is likely to generate headwinds for growth prospects.