In the view of Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia at UOB Group, further downside could force AUD/USD to slip back towards the 0.6540 region in the short-term horizon.

Key Quotes

24-hour view: The outsized selloff of 1.57% (NY close of 0.6613) in AUD yesterday came as a surprise (we were of the view that AUD could advance further but is unlikely to break 0.6785). Not surprisingly, conditions are severely oversold. However, the weakness in AUD has not stabilised. Today, AUD could break below June’s low of 0.6595. In view of the oversold conditions, the next major support at 0.6540 is unlikely to come under threat. On the upside, if AUD breaks above 0.6655 (minor resistance is at 0.6635), it would mean that the weakness in AUD has stabilised.  

Next 1-3 weeks: In our most recent narrative from Monday (31 Jul, spot at 0.6660), we highlighted that “there is a chance, albeit not a high one, for AUD to drop to June’s low of 0.6595.” Yesterday, AUD nosedived to a low of 0.6603 before closing on a weak note at 0.6613 (-1.57%). The boost in downward momentum suggests a break of 0.6595 will not be surprising. A break of 0.6595 will shift the focus to 0.6540. Overall, the weakness in AUD that started more than a week ago is intact unless AUD breaks above 0.6710 (‘strong resistance’ has moved sharply lower from yesterday’s level of 0.6785).