AUD/USD Mounts Larger Rebound Following Failed Run at May 2017 Low

Australian Dollar Talking Points

AUD/USD stages a meaningful rebound ahead of the final week of June, and the exchange rate may continue to retrace the decline from earlier this month as it snaps the recent string of lower highs & lows.

AUD/USD Mounts Larger Rebound Following Failed Run at May 2017 Low

Recent price action in AUD/USD warrants attention as the sharp selloff in the exchange rate fails to produce a test of the May 2017-low (0.7329), and fresh data prints coming out of the world’s largest economy may foster a larger rebound over the days ahead as U.S. Durable Goods Orders are expected to contract another 1.0% in May.

Waning demand for larger-ticket items may weigh on the U.S. dollar as it limits the Federal Open Market Committee’s (FOMC) scope to extend the hiking-cycle, but a pickup in the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, may undermine the recent weakness in the greenback as it encourages the central bank to implement higher borrowing-costs over the coming months.

With that said, Chairman Jerome Powell and Co. may stay on course to deliver four rate-hikes in 2018, and the ongoing divergence in the monetary policy outlook may foster a more bearish outlook over the remainder of the year especially as the Reserve Bank of Australia (RBA) remains reluctant to lift the official cash rate (OCR) off of the record-low.

AUD/USD Daily Chart

• Broader outlook for AUD/USD remains tilted to the downside as the pair continues to track the downward trend from earlier this year, with the Relative Strength Index (RSI) highlighting a similar dynamic, but recent developments in the oscillator warns of a larger rebound in the exchange rate as the momentum indicator turns around ahead of oversold territory.
• In turn, the failed attempt to test the May 2017-low (0.7329) may spark a move back towards the Fibonacci overlap around 0.7460 (23.6% retracement) to 0.7530 (38.2% expansion), with the next topside hurdle coming in around 0.7590 (100% expansion).

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--- Written by David Song, Currency Analyst

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