AUD/USD: A drop to 0.6595 is not ruled out so far – UOB

24-hour view: Last Friday, we expected AUD to test the major support at 0.6680, and we held the view that “a sustained decline below this level appears unlikely today.” While our view of a weaker AUD was not wrong, we did not anticipate the sharp selloff that sent it plunging to a low of 0.6623. AUD rebounded strongly from the low, but while downward momentum has eased, it is too early to expect a sustained recovery. Today, AUD is more likely to consolidate and trade between 0.6630 and 0.6700. 

Next 1-3 weeks: After AUD fell sharply to 0.6699, we highlighted last Friday (28 Jul, spot at 0.6710) that “While downward momentum is building again, AUD has to break and stay below the major support at 0.6680 before further weakness is likely.” We indicated, “The next level to watch below 0.6680 is 0.6640.” In other words, we did not expect the price actions where AUD plunged below both 0.6680 and 0.6640. The decline was however, short-lived, as AUD rebounded strongly from a low of 0.6623. Short-term conditions are severely oversold, and this could lead to a few days of consolidation. As long as 0.6750 (‘strong resistance’ level was at 0.6785 last Friday) is not breached, there is a chance, albeit not a high one, for AUD to drop to June’s low of 0.6595.