The AUD is the biggest mover in the FX markets today

As expected the Reserve Bank of Australia kept its cash rate at 4.1% for a third month with a warning that which the Australian economy was experiencing a period of below-trend growth, the RBA does still intend to raise rates again. IGTV’s Jeremy Naylor looks at the short trade on AUD/USD and also against JPY EUR CAD etc.

(Video Transcript)

The Reserve Bank of Australia

The biggest move on the foreign exchange markets on this Tuesday, 5th of September, is a slide in the AUD. What's behind it? Well, it's the Australian interest rate decision, I think more than anything else, although there is impetus as well coming through from some poor economic data in China.

Let's take a look at what happened today from the RBA. The Reserve Bank of Australia kept its cash rate at 4.1% for a third month in a row. In its statement, the RBA said the Australian economy was experiencing a period of below-trend growth and expected it to continue for a while.

The Australian dollar

The RBA warned again that further tightening might be needed to bring it to heel in a reasonable timeframe. Yesterday, a Reuters poll on the RBA rate decision said most economists expect a final rate hike next quarter. It added that inflation was still too high in the Australian economy and noted that the services price inflation had been surprisingly persistent overseas and the same could occur in Australia.

Add all this up and it was a down day for the AUD, most notably against the USD. Now look at this move that we've got here at the moment. If you close these levels, it will be the lowest close on this market that we've seen since the 4th of November.

The trend trading pattern

I was talking about this trend trading pattern here that's built up as we broke the neckline of this double top. The double top pattern is where you get a top at very similar levels. The first top establishes a drop and then you get back up there and then you break that and you extend the line between the two lines of resistance and support, extend that down here and you get that low point down here at 6,300, which is a nice round number.

Technical analysis

And as technical analysts, we all look to psychologically important levels and 63 cents is a particularly good level to watch out for. And as I say, lowest since the 4th of November last year. So there's weakness in the Australian dollar. But if you are a foreign exchange trader, there's an opportunity here to trade against a number of currencies.

And if this trend continues and if you're shortening any of these, you'll be making money at the moment. Big drop today against the Canadian dollar. This is the biggest drop that we've seen there since the 23rd of June.

Similar sort of thing. I think this area of 62.25 is an area of interest to watch out for for that. Let's take a look at what's happening as well against the other areas of the market, because the Aussies down against the whole basket of currencies is down against the Japanese yen, pushing this line of support at 93.09, which is the 61.8% retracement that we've tried to break and failed to break before from the Fed that started back on the 31st of May to swing high, we saw on the 19th of June. And this is an area of interest, I think almost certainly worth watching.

The moving average

Let me just pull this out to get you some more evidence as to where we are and some better levels or better graphics to work with. There you are, 93.10 is this line to break. You've got a candle close below there, which coincides with the 100 period moving average.

You're then on the way down to 200 day moving average at 92.01, which is the next line of support to watch out for for the AUD/JPY. Against the EUR, similar sort of price action today at 93.59.30, I beg your pardon, on the way down for a second down row. So the Aussie short against the whole basket of currency.