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Australian Dollar Talking Points

AUD/USD pulls back from the monthly-high (0.7337) as the Reserve Bank of Australia (RBA) Minutes does little to sway the monetary policy outlook, and the advance from the 2018-low (0.7021) may continue to unravel as the exchange rate extends the series of lower highs & lows from earlier this week.

Image of daily change for major currencies

AUD/USD Rate Carves Bearish Series Following Lackluster RBA Minutes

Image of daily change for audusd rate

AUD/USD struggles to hold its ground even as the RBA transcript states that ‘the next move in the cash rate was more likely to be an increase than a decrease’ as the central bank appears to be in no rush to lift the official cash rate (OCR) off of the record-low.

Image of RBA official cash rate

It seems as though the RBA will continue to run the clock at the next meeting on December 4 as officials reiterate that ‘there was no strong case for a near-term adjustment in monetary policy,’ and Governor Philip Lowe & Co. may continue to tame bets for higher borrowing-costs as ‘members noted that there continued to be uncertainty about the degree of spare capacity in the labour market and the extent and speed of any pick-up in wages growth relative to the gradual increase incorporated in the latest forecasts.

With that said, the RBA appears to be bracing for further depreciation in AUD/USD as ‘changes in the expected paths of monetary policy over the preceding year had been reflected in changes to financial market pricing, most notably a broad-based appreciation of the US dollar,’ and the growing interest rate differential may continue to drag on the exchange rate in 2018 especially as the Federal Open Market Committee (FOMC) shows little to no interest in abandoning the hiking-cycle.

Keep in mind, the upcoming U.S. holiday is likely to give way to thin market conditions as participation wanes ahead of the weekend, but the recent pullback in AUD/USD appears to be spurring a bit of crowding behavior as retail traders remain net-long aussie-dollar.

Image of IG client sentiment for audusd

The IG Client Sentiment Report shows 58.5% of traders are now net-long AUD/USD compared to 57.8% earlier this week, with the ratio of traders long to short at 1.41 to 1. In fact, traders have remained net-long since November 13 when AUD/USD traded near 0.7220, with price moving 0.5% higher since then. Nevertheless, the number of traders net-long is 2.6% lower than yesterday and 3.7% lower from last week, while the number of traders net-short is 2.2% higher than yesterday and 11.3% lower from last week.

The recent swing in the sentiment index warrants attention as a skew in retail interest appears to be taking shape, but waning market participation may spur a larger pullback in AUD/USD as it snaps the bullish sequence 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

Image of audusd daily chart
  • Break of the September-high (0.7315) instills a constructive outlook for AUD/USD, but the failed attempt to break/close above the 0.7320 (50% expansion) to 0.7340 (61.8% retracement) region brings the downside targets back on the radar as the exchange rate carves a fresh series of lower highs & lows.
  • Need a break/close below the 0.7170 (23.6% expansion) to 0.7180 (61.8% retracement) region to open up the Fibonacci overlap around 0.7090 (78.6% retracement) to 0.7110 (78.6% retracement), with the next area of interest coming in around 0.7020 (50% expansion), which lines up with the 2018-low (0.7021).
Image of DailyFX economic calendar

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.