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Whats happening with the Australian and US dollars? Quick thought on the AUD/USD

Written by Sam Coxhead on July 21st, 2011.      0 comments

3:30 PM (NZT) The Australian and US dollars continue to trade in the 1.0500-1.0800 range they have been in for the last month or so. This week has seen mostly slow appreciation from the AUD as the concerns about the ability of Obama to get the backing to lift the Federal debt ceiling plays out.
The focus in Australia this week has been the Reserve Bank of Australia (RBA) Monetary Policy meeting minutes  which were more “dovish” than expected and this saw a little AUD weakness. But it was not enough to snuff out the subtle trend higher  to the upper end of the broader range. In interest rate market has moved to start to price the possibility of cuts in the cash rate from the RBA, if this follows through there should be ample room for downward pressure on the AUD over the medium term as the interest rate differentials close up.
The US debt ceiling situation remains the key in the short term. Assuming that they finally come to an agreement, the US dollar should get some follow through from this. Depending on how aggressive the planned budget cuts are over the next decade will probably dictate what reaction the ratings agencies move in the next 90 days. A credit downgrade of the US Government remains the primary risk to any US dollar strength in the short term, and this is the dilemma facing the markets this week.
Next week the Australian inflation numbers on Wednesday will be closely followed, as will the US GDP figures on Friday.
At this stage there is little that seems like to see the 1.0500/1.0800 range broken in the near term, and the current levels represent good value buying of US dollars with AUD.
The Current price is 1.0710 (which has just moved 40pts lower on some weaker than expected Chinese manufacturing data).
Obviously we have significant resistance on the topside at 1.0800. On the downside 1.0650 should offer some support before more significant support at 1.0570 and solid support at 1.0500.