Australian Dollar Talking Points
AUD/USD continues to carve a series of lower highs & lows as fresh data prints coming out of Australia instill a weakened outlook for the region, and recent price action raises the risk for a further depreciation as both price and the Relative Strength Index (RSI) snap the bullish formations carried over from October.
AUD/USD Rate Snaps Upward Trend as Bearish Series Takes Shape
The Australian dollar extends the decline following Australia’s Gross Domestic Product (GDP) report as updates to the Balance of Payments (BoP) show the trade surplus narrowing more-than-expected in October, and it seems as though market participants are turning a blind eye to the 0.3% expansion in Retail Sales as the lingering threat of a U.S.-China trade war dampens the economic outlook for the Asia/Pacific region.
In response, Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle warns that interest rates ‘can still move lower’ especially as falling home prices ‘run the risk of amplifying the downturn in the housing market,’ and it seems as though the central bank is bracing for a further depreciation in the local currency as the floating exchange rate ‘remains an important shock absorber for the Australian economy.’
With said, AUD/USD may continue to chip away at the advance from the 2018-low (0.7021) as the RBA remains in no rush to lift the official cash rate (OCR) off of the record-low, but retail traders appear to be fading the weakness in the exchange rate as the pickup in volatility spurs a rebound in market participation.
The IG Client Sentiment Report shows 69.1% of traders are now net-long AUD/USD compared to 60.3% yesterday, with the ratio of traders long to short at 2.24 to 1. The number of traders net-long is 14.5% higher than yesterday and 24.1% higher from last week, while the number of traders net-short is 22.5% lower than yesterday and 38.9% lower from last week.
The sharp decline in net-short interest points to profit-taking behavior as AUD/USD continues to pullback from the monthly-high (0.7393), but the growing skew in retail position offers a contrarian view to crowd sentiment as both price and the Relative Strength Index (RSI) now snap the bullish formations carried over from October. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.
AUD/USD Daily Chart
- Despite the break of the September-high (0.7315), the opening monthly range raises the risk for a further decline in AUD/USD as the exchange rate carves a fresh series of lower highs & lows, with both price and the Relative Strength Index (RSI) taking out the upward trends from October.
- In turn, the 0.7170 (23.6% expansion) to 0.7180 (61.8% retracement) region is back on the radar, with a break/close below the stated region opening up the next downside area of interest around 0.7090 (78.6% retracement) to 0.7110 (78.6% retracement) followed by 0.7020 (50% expansion), which lines up with the 2018-low (0.7021).
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--- Written by David Song, Currency Analyst
Follow me on Twitter at @DavidJSong.