Talking Points:
- AUD/USD Bullish RSI Trigger Remains in Focus Ahead of RBA Minutes.
- USD/CAD Clings to December Opening Range Ahead of Canada Consumer Price Index (CPI).
AUD/USD trades near the monthly-high (0.7695), with the pair at risk of extending the advance from the previous week should the Reserve Bank of Australia (RBA) Minutes highlight a greater willingness to move away from the easing-cycle.
Even though the RBA remains in no rush to remove the record-low cash rate, the central bank may gradually alter the monetary policy outlook as Governor Philip Lowe warns ‘it is more likely that the next move in interest rates will be up, rather than down.’ A fresh batch of hawkish rhetoric is likely to trigger a bullish reaction in the Australian dollar as it stokes expectations for a 2018 rate-hike, and the aussie-dollar exchange rate may stage a larger recovery over the remainder of the year especially as the Relative Strength Index (RSI) breaks out of the bearish formation carried over from the summer months.
Keep in mind, the broader outlook for AUD/USD remains mired by the downward trend from September, but recent price action keeps the topside targets on the radar as the pair snaps the monthly opening range. Want to learn more about popular trading indicators and tools such as the RSI? Download and review the FREE DailyFX Advanced trading guides !
AUD/USD Daily Chart
- The rebound from the December-low (0.7501) appears to be losing steam as it snaps the series of higher highs & lows from the previous week, but the bullish RSI trigger keeps the topside targets on the radar, with another close above the 0.7650 (38.2% retracement) raising the risk for a move towards 0.7720 (23.6% retracement) to 0.7770 (61.8% expansion), which largely lines up with the November-high (0.7730).
- Need to see a definitive break of the descending channel to open up the next topside hurdle around 0.7850 (38.2% retracement) to 0.7860 (61.8% expansion), with the next region of interest coming in around 0.7930 (50% retracement) to 0.7940 (61.8% retracement).
The series of failed attempts to break the monthly-high (1.2902) may continue to foster range-bound conditions for USD/CAD, with the par at risk of facing a near-term pullback as Canada’s Consumer Price Index (CPI) is anticipated to increase to an annualized 2.0% from 1.4% in October.
Even though the Bank of Canada (BoC) reiterates that the ‘Governing Council will continue to be cautious, guided by incoming data in assessing the economy’s sensitivity to interest rates,’ a marked pickup in the headline reading for inflation may push Governor Stephen Poloz and Co. to adopt a more hawkish tone at the next meeting on January 17 in an effort to curb the threat for above-target inflation.
In turn, the BoC may continue to warn ‘higher interest rates will likely be required over time,’ with USD/CAD at risk of exhibiting a more bearish behavior in 2018 as the central bank appears to be on course to further normalize monetary policy. Want more insight? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to cover key market themes along with potential trade setups.
USD/CAD Daily Chart
- Lack of momentum to test the monthly-high (1.2902) raises the risk for range-bound conditions, with USD/CAD at risk for a move back towards the 1.2620 (50% retracement), which largely lines up with the December-low (1.2624).
- Keeping a close eye on the Relative Strength Index (RSI) as it highlights a similar dynamic and consolidates within a near-term wedge/triangle formation, with the broader outlook still supportive as the oscillator retains the bullish formation carried over from the summer months.
- With that said, topside targets remain on the radar, with a break out of the monthly opening range raising the risk for a move towards 1.2980 (61.8% retracement) to 1.3030 (50% expansion), with the next topside hurdle coming in around 1.3130 (61.8% 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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