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PBOC Rate Cut Should Reinforce Bullish Technical Outlook for AUDUSD

Technical Analysis

 

The People’s Bank of China (PBOC) cut rates on Sunday 10th May, the third cut in the past 6 months, lowering the one-year lending rate to 5.1%, down by 0.25% and the deposit rate also by 25bps to 2.25%. Furthermore, the ceiling on the deposit-rate was increased to 150% of the benchmark from 130%, a further easing measure. From a technical standpoint, this should have a positive effect on the AUDUSD spot FX rate, which has been displaying a more robust tone since late April.

AUDUSD Upside Risks

A Friday dip and bounce leaves underlying upside pressures from the strong post-RBA recovery effort, having then defended support at .7790/84 and more recently .7860/59.

We still see upside risks for May from the rally through .7938 that defined a base and the push above retrace resistance at .8062 that set a more bullish outlook.

For Today:

  • The China rate cut sees an upside bias for .7968; break here aims for .8005, 8030 and maybe .8076.
  • But below .7859 opens risk down to .7784, which we would look to try to hold.

Short/ Intermediate-term Outlook – Upside Risks:

  • We see a more positive tone with the bullish threat back to the new recovery peak at .8076, then to .8137.
  • Above here targets key levels at .8224/34 and .8295.

What Changes This? Below .7761 eases bull risks; through .7679 signals a neutral tone, only shifting negative below .7533.

Momentum: The 8-day RSI, short-term momentum has corrected from OB and aiming up, and we see scope to go higher this week.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.


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