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AUD/USD Tumbles on RBA Caution

H.S. Borji
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AUD/USD Tumbles on RBA Caution

The Australian dollar nosedived against its US counterpart Thursday after Reserve Bank of Australia Governor Glenn Stevens cautioned the markets about house prices and the strength of Australian dollar.

The AUDUSD tumbled nearly 1 percent to 0.9352, rebounding from an intraday low of 0.9334. The pair faces initial support at 0.9342 and resistance at 0.9486. A test of the initial resistance would open the door to 0.9529, spurring a higher buying interest. The 0.9500 region appears to be a good sell target over the short-term as the markets continue to speculate about Australian monetary policy.

The Australian dollar faced declines across the board, losing ground against the New Zealand dollar and Japanese yen.

The AUDNZD declined 0.83 percent to 1.0683. The pair faces initial support at 1.0655 and resistance at 1.0815.

The AUDJPY declined 0.55 percent to 95.55. The pair is testing the 95.54 support. Resistance is found at 96.45.

Reserve Bank of Australia Governor Glenn Stevens cautioned the markets about the historically high exchange rate of the Australian dollar, which could impact the country’s trade agenda.

Speaking at the Australian Meeting of the International Econometric Society, Stevens noted the Aussie was overvalued, “and not by just a few cents.”

“[T]he exchange rate remains high by historical standards,” Stevens said in a speech on Thursday. “When judged against current and likely future trends in the terms of trade, and Australia’s still high costs of production relative to those elsewhere in the world, most measurements would say it is overvalued.”

The Aussie tumbled sharply following his comments and continued to slide in the European and North American sessions.

Stevens also warned about house prices in the Sydney region, an area that has attracted buyers in search of future capital gains.

“People should not assume that prices always rise,” Stevens added. “They don’t; sometimes they fall.”

Record low mortgage rates have led to burgeoning debt levels, especially in the New South Wales region.

According to Stevens, “The total value of credit approvals for investor loans in New South Wales as a whole is about 130 percent higher than in 2008, and it is in the investor segment where there has been evidence of some increase in lending with loan-to-value ratios above 80 percent.”

Earlier this week the RBA left its benchmark lending rate unchanged at 2.5 percent for the eleventh consecutive month, maintaining its wait and see approach amid a broad cool down in the housing sector.

In economic data, Australian building permits surged in May, advancing 9.9 percent. That was more than three times higher than the median estimate of 3.1 percent.

Compared to May 2013, building permits were up 14.3 percent.

Australian retail sales unexpectedly declined in May, as the federal budget weighed on sentiment. Retail revenues declined 0.5 percent in May, following a decline of 0.1 percent the previous month, the Australian Bureau of Statistics reported today.

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