Talking Points:
- AUD/USD to Stage Larger Advance on Strong Australia 2Q GDP Report.
- USDOLLAR Weakness to Persist as Mixed Data Drags on Bets for September Rate-Hike.
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Chart - Created by David Song
- Despite the limited market reaction to the Reserve Bank of Australia (RBA) interest-rate decision, AUD/USD may continue to retrace the decline from the August high (0.7759) as the Relative Strength Index (RSI) breaks out of the bearish formation carried over from the previous month; may see price show a similar dynamic especially as Governor Glenn Stevens prepares to depart from the central bank.
- Australia’s 2Q Gross Domestic Product (GDP) report is expected to show the economy growing an annualized 3.3% following the 3.1% expansion during the first three-months of 2016, and a marked pickup in the growth rate may encourage the RBA to retain a wait-and-see approach at the next policy meeting on October 4, but Mr. Philip Lowe may keep the door open to further embark on the easing-cycle as the central bank anticipates inflation to remain quite low for ‘some time.’
- A break/close back above former support around 0.7650 (78.6% retracement) may spur a test of the August high (0.7759), followed by the 2016-high (0.7834).
- The DailyFX Speculative Sentiment Index (SSI) shows a bit of back and forth in retail positioning during the previous week, with the FX crowd net-short AUD/USD since September 4, while the ratio marked an extreme reading in August as it slipped to a low of -1.81.
- The ratio currently sits at -1.21 as 45% of traders are long, with short positions 9.9% higher from the previous week, while open interest stands 4.0% above the monthly average.
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USDOLLAR(Ticker: USDollar):
| Index | Last | High | Low | Daily Change (%) | Daily Range (% of ATR) |
|---|---|---|---|---|---|
| US Dollar Index | 11873.53 | 11967.14 | 11873.02 | -0.77 | 171.31% |
Chart - Created by David Song
- The USDOLLAR stands at risk for further losses as the ISM Non-Manufacturing survey narrows to 51.4 in August to mark the lowest reading since February 2010; signs of a slowing recovery may encourage the Federal Open Market Committee (FOMC) to retain the current policy at the next interest-rate decision on September 21 as central bank officials argue ‘most survey-based measures of longer-run inflation expectations were little changed, on balance, while market-based measures of inflation compensation remained low.’
- Will keep a close eye on the fresh headlines coming out of central bank as San Francisco Fed President John Williams, Richmond Fed President Jeffrey Lacker, Kansas City Fed President Esther George, Boston Fed President Eric Rosengren and Dallas Fed President Robert Kaplan are scheduled to speak this week; more of the same from Fed officials may drag on interest-rate expectations as Fed Funds Futures now highlight an 18% probability for a rate-hike in September.
- A closing price below the Fibonacci overlap around 11,898 (50% retracement) to 11,914 (38.2% retracement) may open up the next downside target around 11,822 (23.6% retracement) to 11,843 (38.2% retracement), followed by 11,745 (50% retracement) to 11,759 (23.6% retracement).
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--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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