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Less-Dovish RBA Monetary Policy Report to Fuel AUD/USD Resilience

Less-Dovish RBA Monetary Policy Report to Fuel AUD/USD Resilience

2016-11-01 16:54:00
David Song, Strategist
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Talking Points:

- Post-RBA AUD/USD Advance to Gather Pace on Less-Dovish Monetary Policy Report.

- GBP/USD Narrow Range to Persist Ahead of FOMC/BoE Interest Rate Decisions.

DailyFX

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

AUD/USD

0.7658

0.7689

0.7598

49

91

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • The Australian dollar may continue to outperform its major counterparts over the near-term as the Reserve Bank of Australia (RBA) softens its dovish outlook for monetary policy and looks poised to gradually move away from its easing cycle; will retain a constructive outlook for AUD/USD as the pair continues to coil within the ascending triangle formation from earlier this year, with the pair at risk of testing the October high (0.7734), which lines up with near-term resistance around 0.7730 (61.8% retracement) to 0.7740 (78.6% expansion).
  • It seems as though Governor Philip Lowe & Co. will retain the current policy at the December 6 meeting and carry the wait-and-see approach into 2017as ‘inflation is expected to pick up gradually over the next two years,’ and the quarterly monetary policy report due out on November 4 may fuel the bullish sentiment surrounding the higher-yielding currency should the RBA continue to talk down speculation for additional monetary support.
  • Need a break/close above the Fibonacci overlap around 0.7730 (61.8% retracement) to 0.7770 (61.8% expansion) to see a move back towards the 2016-high (0.7835) followed by the next topside region of interest around 0.7860 (61.8% expansion).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.2232

1.2280

1.2206

10

74

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using Trading View

  • Broader outlook for GBP/USD remains tilted to the downside amid the deviating paths for monetary policy, but the pair stands at risk of a larger correction as the Relative Strength Index (RSI) continues to come off of oversold territory and preserves the bullish formation carried over from the previous month; may see the exchange rate resume the downward trend once the oscillator reveals a bearish trigger.
  • Even though the Federal Open Market Committee (FOMC) and the Bank of England (BoE) are widely anticipated to retain their current policy in November, the fresh updates to the BoE’s quarterly inflation report may fuel a relief rally in the sterling should Governor Mark Carney and Co. highlight a greater risk of overshooting the 2% target for inflation.
  • The string of failed attempts to close below 1.2100 (61.8% expansion) may encourage a larger rebound in GBP/USD, with the first topside hurdle coming in around 1.2360 (50% retracement) followed by 1.2460 (61.8% expansion).
DailyFX SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long GBP/USD even after the British Pound ‘flash crash, with sentiment hitting a 2016-extreme of +5.97 in October, while traders have flipped net-short AUD/USD following the RBA interest rate decision.
  • GBP/USD SSI sits at +2.42 as 71% of traders are long, with short positions 26.0% higher from the previous week even as open interest stands 3.6% below the monthly average.
  • AUD/USD SSI sits at -1.44 as 41% of traders are now long, with short positions 13.7% higher from the previous week, while open interest stands 2.2% above the monthly average.
  • May see waning interest for GBP/USD as market participants turn their attention to the BoE’s ‘Super Thursday’ event especially as the central bank is scheduled to release its updated economic projections.

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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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