AUD/USD: Testing Six Year Lows
The pair has been steadily declining from 0.7279, the month’s high, and now trades at 0.6958. The past three trading sessions have closed lower and price is on course to repeat that today. We saw a six year low at 0.6905 on September 4th and it is close to testing these lows again.
USD has strengthened this week across the board and has been a major driver for the pairs fall. Important US data is out today and tomorrow at 12:30 GMT which may indicate where price will move next. There is no significant data due out from Australia until next Tuesday.
Comparing the developed economies side-by-side, in the bigger fundamental picture Australia’s currency may be placed under further pressure in the near future; the latest GDP yearly growth for Australia is at 2% while it is at 2.7% for the US. Australia also has a higher unemployment rate at 6.2% compared to 5.1% in the US. There is also another factor driving AUD down, as the price of commodities like gold and oil fall a weaker AUD accommodates Australia’s commodity producers as they receive USD when selling commodities and exchange this into their local currency, AUD (that is they are buying AUD/USD and benefit from a cheaper rate).
Looking at the 4-hour candle chart we see price is in a clear bear trend. The retracement that began after its most recent low at 0.6905 (September 4th) ended four trading sessions ago at 0.7279. Yesterday’s price action was supported at 0.6990 however this broke in the early European session today. The price looks set to test its support at 0.6905. On the topside, initial resistance lies at 0.7020 closely followed by 0.7050.
Trade 1: If you expect the pair to continue its downtrend over the next month, you may buy a Put option which gives you the right to sell AUD/USD at a certain price until a future date. For example, you may buy a Put to sell 10,000 AUD at 0.6950 (current market price) until October 30th 2015. An image of this trade is below, you can 0.6950 is the 'strike price' and October 30th is the 'expiry date'. It would cost you a 124.93 USD premium to buy this option.
If AUD/USD falls below 0.6950 the option’s value will increase and, for example, if the price reaches 0.6500 (450 pips lower) by expiry the option will payout 450 USD. But, if price remains above 0.6950 then the option will not payout and you lose the 124.93 USD premium paid.
Trade 2: If you expect the pair to hold above 0.6905 and retrace higher, you may buy a Call option which gives you the right to buy AUD/USD at a certain price until a future date. For example, you may purchase a Call to buy 10,000 AUD at 0.7000 over the next 2-weeks. An image of this trade is below, you can see it would cost you a 57.28 USD premium to buy this option.
If AUD/USD rises above 0.7000 the option’s value will increase and, for example, if the price reaches 0.7300 (300 pips higher) by expiry the option will payout 300 USD. But, if price remains below 0.7000 then the option will not payout and you lose the 57.28 USD premium paid.
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