AUD/USD to look out for green shots above the 0.7053/0.6991 area – DBS Bank

Last week’s 21% iron ore price crash precipitated AUD/USD’s fall to a 0.7106 low. The aussie has been on the decline since late February and is on the cusp of seeing major Fibonacci retracement support at 0.7053 and a major 0.6991 support. These are areas to look out for green shoots, according to Benjamin Wong, Strategist at DBS Bank.

The decline on AUD contours well with weak August seasonality

“Mapped on its 10-year seasonality chart, AUD does show an extreme weak August seasonality, but that is about to fade out over the course of this week. AUD/USD in trading to a 0.7106 low and then staging a stabilising bounce is cognisant of the 100-week moving average at 0.7142 popping up support.”

“Any further negative distortion of iron ore prices can undermine both the Reserve Bank of Australia (RBA) and Federal budget baseline assumptions. Large iron ore price drops can threaten implied Federal budget levels, and by default nominal GDP and company tax receipts.”

“Prices are now chiselled into a channel. Should the AUD bull wish to reassert dominance, it still has to fight through resistance at the channel top that brims at 0.7315. Additionally, a prior trendline that connects up from June 2020 links in 0.7351 to offer resistance that runs up to the 55-day moving average at 0.7447.”

“Flipping to a weekly time frame, one can argue that AUD’s drop from 0.8007 (late February peak) remains corrective to the price recovery from the cyclical 0.5510 lows. The pivotal moving average runs through 0.7465, sustaining the thought that mid-0.74s would be the real battleground should the AUD bull resurface.”

“Below the Fibonacci extension price pivot of 0.7122 rests another formidable support in the mould of the 38.2% Fibonacci retracement of the rally from 0.5510 lows to 0.8007 at 0.7053 – that tangoes with 0.7063, the upside breakout point of June 2020. Major support is not exactly far off at 0.6991.”