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AUD/USD Forecast: Bearish Behavior to Persist as Summer Range Snaps

AUD/USD Forecast: Bearish Behavior to Persist as Summer Range Snaps

David Song,
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Australian Dollar Talking Points

AUD/USD slips to a fresh yearly-low even as the Reserve Bank of Australia (RBA) starts to change its tune, and the exchange rate now stands at risk of exhibiting a more bearish behavior over the days ahead as it snaps the range-bound price action from the start of the summer months.

Image of daily change for major currencies

AUD/USD Forecast: Bearish Behavior to Persist as Summer Range Snaps

Image of daily change for audusd

AUD/USD struggles to hold its ground after failing to test the July-high (0.7484), and fresh developments coming out of Australia may do little to prop up the local currency as updates to the Wage Price Index (WPI) is expected to show household earnings holding steady at 2.1% for the fourth consecutive quarter.

Signs of subdued wage growth should keep the RBA on the sidelines throughout 2018 as ‘household income has been growing slowly and debt levels are high,’ and Governor Philip Lowe & Co. may continue to tame bets for an imminent rate-hike as ‘the low level of interest rates is continuing to support the Australian economy.’

Keep in mind, the latest remarks from the RBA suggest the central bank will gradually alter the forward-guidance for monetary policy as ‘the central forecast is for inflation to be higher in 2019 and 2020 than it is currently,’ and Governor Lowe & Co. may start to strike a hawkish tone later this year as ‘the rate of wages growth appears to have troughed and there are increased reports of skills shortages in some areas.’

As a result, market participants are likely to pay increased attention to the RBA’s quarterly Statement on Monetary Policy due out on August 10, with AUD/USD at risk of exhibiting a bearish behavior as the exchange rate snaps the summer range and initiates a series of lower highs & lows.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!

AUD/USD Daily Chart

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  • Broader outlook for AUD/USD remains tilted to the downside as price & the Relative Strength Index (RSI) track the downward trends from earlier this year, with recent developments in the momentum indicator highlighting the risk for a further decline in the exchange rate as the oscillator snaps the bullish formation carried over from June.
  • The break/close below the 0.7320 (50% expansion) to 0.7340 (61.8% retracement) region brings the downside targets back on the radar, with the next region of interest coming in around 0.7180 (61.8% retracement) to 0.7230 (61.8% expansion) followed by the Fibonacci overlap around 0.7090 (78.6% retracement) to 0.7110 (78.6% retracement).
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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.