Australian Dollar Looks Lost as ASX 200 Continues to Struggle

Australian Dollar Looks Lost

The Australian dollar continues to trade within a narrow range between 0.73 and 0.74 where it has mainly loitered for the last month, but interestingly it seemingly looks stuck in no man’s land. It doesn’t know where to turn next.

It has depreciated significantly against the US dollar amongst other major currencies but now the RBA message has changed. No longer are they talking the currency down and now traders are looking for further cues.

The Fed’s potential rate rise has been looming all year and is highly likely to happen this year. This has been well publicised but what is more important than the timing of the first rate rise, is the path of gradual increases over the next year or so. Will the AUD/USD suffer further when the first US rate rise is announced? Many are expecting a surge in volatility but that may end up giving the AUD/USD an immediate boost.

S&P/ASX 200 Index Continues to Struggle

The ASX200 index continues to loiter near 2015 lows as it struggles to rally back to above the key 5400 level. The 5400 level did so well for the last couple of months in supporting the index however the 7% decline over the last couple of weeks was too much to handle and the index drifted lower to near 5300 and its lowest point since January.

It has firmly entrenched itself in a medium term down trend since April and is now quite unlikely to get back above the 5700 level any time soon.

Similar to Telstra, AMP has done well to consolidate over the last six months mainly between $6.20 and resistance at $6.80, remaining quite resilient to the general market falls over the last few months. It will need to stay above $6 to keep investors optimistic.

BHP continues to look bearish, however it is doing well presently to receive solid support from $25. The selling pressure continues to mount forming a descending triangle in the process and this is placing the $25 level under severe pressure.

Rio Tinto is showing similar signs although not as obvious as BHP. Rio has enjoyed support from the $50 level over the last month or so after significant declines since March. The selling pressure continues above $50 however unlike BHP, there is no obvious support level lower should the $50 level fail.

Scentre Group remains very steady and oblivious to the ASX200’s fortunes. As does Telstra as it continues to surprise rallying up strongly in the last few days, from support around $6. Whilst the market has been falling steadily since April, Telstra has enjoyed solid support $6 appearing to have a floor level. Westfield is demonstrating some very similar in that it has remained steady over the last 6 months trading between $9 and $10.

Gold – Struggles to One Month High

Gold has done well over the last 2 weeks to rally strongly and break back above the solid resistance level at $1100. It has continued this run in the last 24 hours moving higher to a one month high above $1130. Just ahead looms a potential road block in the form of resistance around $1150 which served as short term support back in early July and March. This is likely to play a role again should gold be able to rally together some more buyers.

You still get the feeling that unless another catalyst comes along, gold will resume it downward slide and fall back under the $1100 level. Several years ago we saw gold climb $1800 as there was a genuine demand for a ‘safe haven’ asset however this demand has clearly declined sharply. The fact that we are likely nearing when the Fed raises rates for the first time in 9 years, does not bode well for safe havens.

Stuart McPhee
Stuart McPhee
Australian private trader for nearly 20 years, author, trading coach, licensed adviser and regular speaker at major trading events all around the world. Graduate of RMC Duntroon and former Australian Army Officer.