RBA says AUD is overvalued while Uncertainty of a variety of political risks continues…

November 10, 2017

Are Aussie bulls losing steam? Uncertainty in the market, due to a variety of political risks, may still play a major role in how the Australian dollar performs.

RBA says AUD is overvalued while Uncertainty of a variety of political risks continues…

This article is originally referred from FXTM Market Forecast

The AUD still benefits from its highyielding status across developed markets, but what has helped the Aussie in recent times, is its geographical isolation from the populist risks that have dominated headlines across the United States, the United Kingdom and areas of Europe.

While the Reserve Bank of Australia (RBA) publically states that the AUD remains overvalued, the fact that the market has become more optimistic about China’s economy-one of Australia’s major trading partners, will support the dollar.

Political Factors on AUD

The ongoing uncertainty over the Catalonia referendum, may also have an impact on the Aussie, especially if political unrest in a major European economy, encourages investors to chase assets isolated from political risks.

When it comes to political risks, there are other factors that could negatively impact the Australian dollar.

Any escalation in geopolitical tensions between North Korea and the United States, appears to be something that is not currently being priced into the market, and it is something that investors should not ignore.

If there is an escalation in tensions between the United States and North Korea, the Australian dollar could likely suffer as a result of investors seeking safer assets, like Yen and Gold.

Technical Prospect on AUD

The current technical picture suggests that sellers might be attempting to take control of the Aussie, after the currency pair recently suffered three months of consecutive losses.

Although a weaker Aussie would satisfy the RBA, who have repeatedly claimed throughout 2017 that it’s overvalued, traders will likely be keeping an eye on whether the AUDUSD can conclude trading on a weekly basis below 0.77.

Such a move would provide a signal to the market that the Aussie remains at risk to giving away gains, from earlier in 2017.

The Daily timeframe also suggests that 0.77 could be used as a significant area of support for the Aussie, with 0.7665, 0.7633 remaining in place, before the market can price in a potential return to 0.75, before the end of the year.

Technical lagging indicators such as the Moving Average Convergence Divergence (MACD), currently trade to the downside, while the candle sticks have found comfort below the daily 20 Simple Moving Average.

With the daily charts creating consistently lower lows and lower highs, the prerequisites of a bearish trend are clearly fulfilled and should support the decline towards 0.77.

A technical bounce seems to be in play with the 0.7870 38.2% Fibonacci level and the 0.7920 50.00% Fibonacci levels, acting as prices of interest.

Traders will closely be watching if 0.7834 transforms into a dynamic resistance on the weekly charts.

Sustained weakness below this level may open a path towards 0.7000 and 0.7580. Although the monthly bullish channel still remains in play, a solid monthly close below 0.7750 may trigger a selloff towards 0.7550.

In an alternative scenario, bulls need to break back above the tough 0.8000 resistance level for prices to edge higher towards 0.8120 and 0.8300 respectively.

Original Source: FXTM Market Forecast

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