Australian Dollar Talking Points
The near-term advance in AUD/USD appears to be stalling ahead of the Reserve Bank of Australia (RBA) Minutes as it struggles to extend the recent series of higher highs & lows, but the exchange rate may stage a larger correction over the remainder of the month as long as the Relative Strength Index (RSI) preserves the bullish formation carried over from October.
AUD/USD Bullish Sequence Sputters Ahead of RBA Minutes
The RBA Minutes may do little to heighten the appeal of the Australian dollar as the central bank remains in no rush to lift the official cash rate (OCR) off of the record-low, and Governor Philip Lowe & Co. look poised to retain the wait-and-see approach for the foreseeable future as ‘the Board does not see a strong case to adjust the cash rate in the near term.’
In turn, the RBA may continue to run the clock at its next meeting on December 4 as ‘growth in household income remains low, debt levels are high and some asset prices have declined,’ and little to no changes in the forward-guidance may undermine the near-term rebound in AUD/USD amid the growing interest rate differential with the U.S.
Nevertheless, the break above the September-high (0.7315) raises the risk for a larger correction especially as both price and the Relative Strength Index (RSI) break out of the bearish formations from earlier this year, and the recent advance appears to be spurring a bit of a crowing behavior amid a recent pickup in retail interest.
The IG Client Sentiment Report shows 57.8% of traders are now net-long AUD/USD versus 70.5% at the end of October, with the ratio of traders long to short at 1.37 to 1. The number of traders net-long is 13.8% higher than yesterday and 12.3% higher from last week, while the number of traders net-short is 8.5% lower than yesterday and 16.8% lower from last week.
The recent swing in the sentiment index warrants attention as a skew in retail interest appears to be taking shape, and a further accumulation of net-long interest may provide a contrarian view to crowd sentiment especially as the exchange rate struggles to extend the series of higher highs & lows from the previous week. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.
AUD/USD Daily Chart
- Break of the September-high (0.7315) instills a constructive outlook for AUD/USD, but recent price action raises the risk for a pullback in AUD/USD as it snaps the bullish sequence from the previous week, with the failed attempt to break/close above the 0.7320 (50% expansion) to 0.7340 (61.8% retracement) region bringing the 0.7230 (61.8% expansion) region back on the radar.
- Next downside region of interest comes in around 0.7170 (23.6% expansion) to 0.7180 (61.8% retracement) followed by the Fibonacci overlap around 0.7090 (78.6% retracement) to 0.7110 (78.6% retracement).
- Need a break/close above the 0.7320 (50% expansion) to 0.7340 (61.8% retracement) hurdle to open up the 0.7400 (38.2% expansion) handle, with the area of interest coming in around 0.7460 (23.6% retracement) to 0.7510 (23.6% expansion).
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--- Written by David Song, Currency Analyst
Follow me on Twitter at @DavidJSong.
