Australian Dollar Outperforms Ahead of RBA Rate Decision, British Pound Falters

The Australian dollar is the best performing currency against the greenback on Monday after rising to a high of 0.9194 during the Asian trade however, the lack of momentum to cross back above the 10-Day SMA at 0.9202 may drive the exchange rate lower throughout the North American session as investors scale back their appetite for risk. The AUD/USD remains slightly higher on the day after moving 89% of its ATR, and pair may continue to retrace the overnight advance and fall back below the 100-SMA at 0.9095 to cover the gap from the Asian open ahead of the Reserve Bank of Australia interest rate decision at 3:30 GMT tomorrow. The RBA is widely expected to hike borrowing costs by 25bp to 3.75% to mark the third consecutive rate hike this year, and expectations for higher interest rates may continue to drive the exchange rate towards parity as the Federal Reserve pledges to hold the key rate at the record-low of some time.

The British Pound weakened against the greenback for the third-day after failing to cross back above the 20-Day SMA at 1.6620 and remains the worst performing currency amongst the majors after moving 101% of its average true range. The GBP/USD fell back from the high (1.6593) as investors remained fearful Dubai World could default on its loans, and the exchange rate may continue to trend lower throughout the U.S. trade as market participants weigh the exposure for U.K. banks. However, as the 30-minute RSI approaches oversold territory, we may see the pair test the 100-Day SMA at 1.6417 for short-term support, but a break below should expose the 50-Day SMA at 1.6355. Nevertheless, as the Bank of England is schedule to meet next week, the pound-dollar may continue to hold a broad range and trend sideways throughout the week as investors weigh the outlook for future policy, and speculation for further easing could lead the pair to retrace the advance from the previous month as market participants scale back long-term expectations for higher interest rates in the U.K.

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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com