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AUD/USD Outlook Mired by Expectations for Slowing Australia Inflation

AUD/USD Outlook Mired by Expectations for Slowing Australia Inflation

Talking Points:

- AUD/USD Outlook Mired by Expectations for Slowing Australia Inflation.

- USDOLLAR Resilience at Risk on Wait-and-See FOMC.

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AUD/USD Daily Chart

Chart - Created by David Song

  • The rebound in AUD/USD may be short-lived as the pair appears to be breaking down from the upward trend carried over from the end of May, while Australia’s 2Q Consumer Price Index (CPI) is expected to show a slowdown in the headline as well as the core rate of inflation.
  • Slowing price growth may push the Reserve Bank of Australia (RBA) to further embark on its easing cycle at the next policy meeting on August 2 especially as Overnight Index Swaps (OIS) highlight expectations for at least one more 25bp rate-cut over the next 12-months.
  • Waiting for a closing price below 0.7450 (38.2% retracement) to negate the bullish formation in price, with the next downside region of interest coming in around 0.7380 (50% retracement) to 0.7390 (78.6% expansion).
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd flipped back net-long AUD/USD on July 19, with the ratio hitting an extreme back in May as it advanced to +2.15.
  • The ratio currently sits at +1.08 as 52% of traders are long, with long positions 10.9% higher from the previous week, while open interest stands 4.3% above the monthly average.

Why and how do we use the SSI in trading? View our video and download the free indicator here

USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
US Dollar Index12100.7612120.2612091.54-0.0555.62%
USDOLLAR Daily Chart

Chart - Created by David Song

  • The near-term resilience in the USDOLLAR is likely to be tested as Fed Funds Futures show a zero-percent probability for a rate-hike as the July 27 interest-rate decision; will keep a close eye on the fresh batch of central bank rhetoric as market participants see a limited risk for higher borrowing-costs in 2016.
  • Another unanimous vote to retain the current policy may produce near-term headwinds for the greenback as market participants push out bets for a Fed rate-hike, but a rift within the committee may heighten the appeal of the dollar as it puts increased pressure on the central bank to further normalize monetary policy..
  • Will retain a constructive view for the USDOLLAR as it continues to hold above 12,049 (78.6% retracement) to 12,064 (61.8% retracement), with the next topside region of interest coming in around 12,170 (78.6% retracement) to 12,176 (78.6% expansion).
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--- Written by David Song, Currency Analyst

To contact David, e-mail Follow me on Twitter at @DavidJSong.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.