Never miss a story from David Song

Subscribe to receive daily updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from DailyFX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to David Song

You can manage your subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

Australian Dollar Talking Points

AUD/USD gives back the advance from earlier this month as China pledges to retaliate to an additional $200B in U.S. tariffs, and recent price action raises the risk for a larger pullback as the exchange rate snaps the series of higher highs & lows from the previous week.

Image of daily change for major currnecies

AUD/USD Rebound Unravels as China Pledges to Retaliate to U.S. Tariffs

Image of daily change for AUDUSD

The growing threat of a trade war may continue to sap the appeal of the Australian dollar as it clouds the economic outlook for the Asia/Pacific region, and the ongoing spat between the U.S. and China, Australia’s largest trading partner, may keep the Reserve Bank of Australia (RBA) on the sidelines as ‘one uncertainty regarding the global outlook stems from the direction of international trade policy.’

As a result, the RBA may merely attempt to buy more time at the next meeting on August 7, and Governor Philip Lowe & Co. may continue to endorse a wait-and-see approach for monetary policy as ‘the low level of interest rates is continuing to support the Australian economy.’ With that said, the lack of urgency to lift the official cash rate (OCR) off of the record-low may continue to produce headwinds for AUD/USD especially as the Federal Open Market Committee (FOMC) looks poised to deliver a 25bp rate-hike in September, and the pair may continue to track the bearish trend from earlier this year as Chairman Jerome Powell & Co. warn that ‘it would likely be appropriate to continue gradually raising the target range for the federal funds rate to a setting that was at or somewhat above their estimates of its longer-run level by 2019 or 2020.

Image of IG Client Sentiment for AUDUSD

Keep in mind, the IG Client Sentiment Report shows traders have been net-long AUD/USD since June 5 when the exchange rate traded near 0.75665 even though price has moved 2.4% lower since then. Nevertheless, net-long positions continue to narrow from recent highs, with the number of positions 8.1% higher than yesterday and 4.2% lower from last week. At the same time, the number of traders net-short aussie-dollar is 14.5% lower than yesterday and 1.1% higher from last week as the recent rebound in the exchange rate appears to be losing momentum.

AUD/USD Daily Chart

Image of AUDUSD 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) still highlighting a similar dynamic.
  • The failed attempt to clear the Fibonacci overlap around 0.7500 (50% retracement) to 0.7530 (38.2% expansion) may give way to range-bound prices as the bullish series snaps, with a close below the 0.7400 (38.2% expansion) handle raising the risk for a move back towards 0.7320 (50% expansion) to 0.7340 (61.8% retracement), which largely lines up with the monthly-low (0.7311).

Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

Image of DailyFX economic calendar

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.