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AUD/USD Rate Weakness Fuels Shift in Retail Interest

AUD/USD Rate Weakness Fuels Shift in Retail Interest

David Song, Strategist

Australian Dollar Talking Points

AUD/USD slips to a fresh monthly-low (0.7155) as lackluster data prints coming out of China, Australia’s largest trading partner, rattle the economic outlook for the Asia/Pacific region, and the advance from the 2018-low (0.7021) may continue to as the pickup in volatility spurs a further shift in retail interest.

Image of daily change for major currencies

AUD/USD Rate Weakness Fuels Shift in Retail Interest

Image of daily change for audusd rate

AUD/USD is back under pressure even though China pledges to suspend the additional 25% tariff on U.S. autos for 90-days, and it seems as though the trade truce has done little to alleviate the outlook for global growth as Chinese retail and industrial numbers come up short.

The lingering threat of a U.S.-China trade war is likely to keep the Reserve Bank of Australia (RBA) on the sidelines as officials see ‘signs of a slowdown in global trade, partly stemming from ongoing trade tensions,’ and Governor Philip Lowe & Co. appear to be on track to retain the record-low cash rate throughout the first-half of 2019 as ‘growth in household income remains low, debt levels are high and some asset prices have declined.

The RBA’s wait-and-see approach for monetary policy puts increased emphasis on the Federal Reserve’s upcoming interest rate decision slate for December 19 as the central bank is widely expected deliver a 25bp rate-hike, and the deviating paths for monetary policy may produce headwinds for AUD/USD as Chairman Jerome Powell & Co. look to carry the hiking-cycle into 2019.

With said, AUD/USD remains at risk of giving back the advance from the 2018-low (0.7021) as both price and the Strength Index (RSI) snap the bullish formations carried over from October, but retail traders continue to fade the weakness in the exchange rate as the pickup in volatility fuels a pickup in net-long interest.

Image of IG client sentiment for audusd

The IG Client Sentiment Report shows 70.5%of traders are now net-long AUD/USD compared 63.3% at the start of the week, with the ratio of traders long to short at 2.4 to 1.In fact, the percentage of traders net-long is now its highest since October 26 when AUD/USD traded near the 0.7080 region. The number of traders net-long is 3.0% higher than yesterday and 2.4% higher from last week, while the number of traders net-short is 25.4% lower than yesterday and 14.8% lower from last week.

The drop in net-short position continues to point to profit-taking behavior as AUD/USD slips to a fresh monthly-low (0.7155), but the ongoing buildup in net-long interest offers a contrarian view to crowd sentiment as the advance from 2018-low (0.7021) continues to unravel. 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
  • Keep in mind, the opening range for December keeps the downside targets on the radar for AUD/USD, but still waiting for a break/close below 0.7170 (23.6% expansion) to 0.7180 (61.8% retracement) to open up the next downside hurdle around 0.7090 (78.6% retracement) to 0.7110 (78.6% retracement).
  • The 0.7020 (50% expansion) area comes up next, which lines up with the 2018-low (0.7021), with the next region of interest coming in around 0.6950 (61.8% expansion).

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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.

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