The AUD/USD has dropped well below its psychological .90 level and is setting new January lows as the Dollar strengthens across the board. The Aussie's selloff was triggered by news that China's major banks are tightening their lending practices in light of the central bank's hawkish monetary stance in an effort to combat inflation and the formation of asset bubbles. Tighter liquidity in China indicates the government is trying to cool down its economy, a particularly negative development for the Aussie since Australia's strong economic performance has been fueled by China's demand for commodities such as crude and iron ore. Furthermore, investors should consider that Australia just printed a weaker than expected PPI figure and this may dissuade Australia's central bank from raising rates at its next policy meeting despite the improvement in employment and domestic consumption. That being said, Australia's CPI release during tomorrow's Asia trading session could carry some additional weight. A weaker than expected CPI figure could place further downward pressure on the AUD/USD while a hot CPI could help buoy the currency pair. Additionally, the U.S. will release CB Consumer Confidence today followed by New Home Sales and the Fed's monetary policy decision tomorrow. Hence, volatility in the Greenback could remain at a heightened state for the next couple trading sessions.
Technically speaking, the AUD/USD is currently approaching our key 1st and 2nd tier uptrend lines. These trend lines could serve as the last line of defense for the currency pair over the near term since they run through December '09 lows, or the .8730 level. As for the topside, the AUD/USD faces multiple downtrend lines along with 12/16 and 1/25 highs. Furthermore, the psychological .90 level may serve as a technical barrier now.
Resistances: .8972, .8994, .9006, .9022, .9044, .9060
Supports: .8950, .8931, .8919, .8904, .8881, .8867
Psychological: .90, December lows and January highs