The Australian dollar faces heavy event risk on Monday from the minutes of the RBA’s latest meeting. The bigger news, though, may be from an anticipated cut in output by OPEC on Wednesday, which leaves bullish potential open for crude oil. What impact will this news have on commodity dollars like the Australian dollar?
On December 15 at 19:30 ET, the Australian dollar will face the release of the minutes from the Reserve Bank of Australian’s December meeting, when they slashed rates by 100 basis points to 4.50%. Following that announcement, RBA Governor Glenn Stevens said that monetary policy was now expansionary, suggesting that they may stop cutting rates aggressively in the near-term. If the RBA meeting minutes reiterate this sentiment, the Australian dollar could actually gain.
There is another announcement traders should be watching this week: Wednesday’s meeting of the Organization of the Petroleum Exporting Countries (OPEC). As a commodity currency, the Australian dollar holds a solid correlation with oil (0.74 over the past 20 days). Since OPEC is anticipated to announce a sharp cut in production, a surge in oil could subsequently trigger a jump in the Australian dollar as well. Indeed, OPEC Secretary-General Abdullah al-Badri said on Monday that they “have to act…we see a very sizeable reduction.” As it stands, OPEC is anticipated to cut output by a record 2 million barrels per day (bpd), versus the biggest cut thus far in April 1999 of 1.716 million bpd.
According to Technical Strategist Jamie Saettele, the decline in crude oil was stretched and the 37.80 - 40 zone “should provide the support needed to stage a rally back to at least 56 and maybe 72. 5 waves appear complete at 40.50 and minor resistance is at the November 28 high at 55.98. Over the next several weeks, crude should reach more significant resistance in the 66.50 (Fibonacci)-72.37 area.” Given the severity of the cut expected by OPEC, there is strong fundamental support for Jamie’s technical argument.
Meanwhile, AUD/USD is at a crossroads, as major resistance looms above where we have two key trendlines intersecting at 0.6750. If the pair manages to break this resistance point, price is likely to target the November highs near 0.7000. However, if the OPEC decision is combined with broad US dollar weakness, AUD/USD could rally toward the 50% fib of 0.8524-0.6007 at 0.7265/75.
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