The Reserve Bank of Australia slashed the Official Cash Rate from 4.25% to 3.75%. The 50 basis point cut was more than the 25-bps cut the market has expected. In Glenn Steven's (Governor of the RBA) statement, he mentioned slowdown in China as well as the challenge in the Eurozone. He also noted a slowing domestic economy despite a growth in demand:
In Australia, output growth was somewhat below trend over the past year, notwithstanding that growth in domestic demand ran at its fastest pace for four years. Output growth was affected in part by temporary factors, but also by the persistently high exchange rate. Considerable structural change is also occurring in the economy. Labour market conditions softened during 2011, though the rate of unemployment has so far remained little changed at a low level.
Also, the strong Aussie contributed to less competitive export prices and therefore limited growth. Finally, a big factor to the rate cut was due to the fact that inflation was held off. The rate cut being deeper than expected pressured the AUD/USD as it slid sharply below key support levels.
The 4H AUD/USD chart shows price falling sharply even before the 12:30AM EDT RBA announcement. It broke below the 1.0385-1.04 area of support factors and came down to test the 1.03 level before holding off heading into the 5/1 US trading session.
The next support area below the 1.03 handle is between 1.0225-1.0245. A break below that opens up the 1.0150 pivot and the parity (1.0) level.
A pullback in the 5/1 US session back above 1.04 would be a bad sign for the bearish outlook after such a strong reaction to break below 1.04. Otherwise, renewed selling to extend the initial reaction can be seen starting near the 1.0350 area.
Fan Yang CMT is a trader, analyst, educator and Chief Technical Strategist for FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.