Dynamics of the Australian dollar looks impressive: AUD/USD slipped by more than 400 pips since the beginning of May. The unexpected RBA rate cut on May 7 drove the pair below parity. Today the pair is trading in the positive territory after having tested a new low at $0.9940 (lowest since June 2012) on Monday. However, the parity level remains a strong resistance for the Aussie bulls.
Our outlook turned bearish as Aussie broke below the $1.0115 range support and was confirmed by a break below $1.0000. Given the dovish RBA, improved US prospects and reduced confidence in China, our next targets lie at $0.9900 and $0.9820 (200-week EMA). In case of a recovery, we recommend selling the pair on rallies. Analysts at RBS concede a short-term rebound to $1.0200, but stay bearish in a medium term.
Australia will release its annual budget at 09:30 GMT. The nation is expected to announce $A 17 bln deficit in 2012/13. For 2013/14 the forecasted deficit is around $A 11 bln. In case of negative surprises in the budget AUD selling could increase significantly.
Chart. Daily AUD/USD