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Focus Shifts to AUD/USD Amid Bets for RBA Rate-Cut

Focus Shifts to AUD/USD Amid Bets for RBA Rate-Cut

Talking Points:

- AUD/USD Preserves Near-Term Bullish Formation Ahead of RBA Rate-Decision.

- USDOLLAR Extends Losses as 2Q GDP Report Disappoints.

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AUD/USD Daily Chart

Chart - Created by David Song

  • Even though AUD/USD largely preserves the upward trend carried over from the end of May, the near-term outlook remains clouded amid the divergence in the Relative Strength Index (RSI); need a break of the bearish formation in the oscillator to favor a larger advance in the exchange rate.
  • Nevertheless, the Reserve Bank of Australia’s (RBA) interest rate decision on August 2 may produce near-term headwinds for the Aussie should Governor Glenn Stevens and Co. further embark on the easing cycle; according to a Bloomberg News survey, 20 of the 25 economists polled forecast the central bank to reduce the official cash rate to a fresh record-low of 1.50% from the current 1.75%.
  • A bullish RSI trigger accompanied by a break/closing price above the Fibonacci overlap around 0.7580 (50% retracement) to 0.7600 (23.6% retracement) may open up the topside targets, with the next region of interest coming in around 0.7650 (78.6% retracement) to 0.7676 (July high).
  • The DailyFX Speculative Sentiment Index (SSI) shows a bit of back and forth in retail positioning going into the end of the month, with the FX crowd flipping net-short AUD/USD earlier this morning.
  • The ratio currently sits at -1.01 as 50% of traders are long, with long positions 12.9% lower from the previous week, while open interest stands 2.4% below 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 Index11954.8812049.4911954.88-0.83175.95%
USDOLLAR Daily Chart

Chart - Created by David Song

  • The USDOLLAR extends the decline from earlier this week as the advance 2Q Gross Domestic Product (GDP) report falls short of market expectations; even though the greenback fails to break the July low (11,953), the reserve currency stands at risk of facing additional headwinds as the weaker-than-expected recovery undermines the Federal Reserve’s scope to further normalize monetary policy in 2016.
  • Even though the Federal Open Market Committee (FOMC) keeps the door open to raise the benchmark interest rate at the next quarterly policy meeting in September, central bank officials may continue to endorse a wait-and-see approach ahead of the U.S. Presidential election in November amid the uncertainty surrounding the fiscal outlook.
  • A break/close below 11,951 (38.2% expansion) to 11,965 (23.6% retracement) may open up the next downside target around 11,898 (50% retracement) to 11,914 (38.2% retracement).
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Read More:

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COT-British Pound Ownership Profile Warns of a Bottom

Post-Brexit NZDUSD Support Vulnerable to Weak NZ Trade Balance

USD/JPY July Recovery at Risk on Wait-and-See FOMC/BoJ Policy

--- 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.