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Australian Dollar Talking Points

AUD/USD extends the rebound from late last week as the U.S. and China, Australia’s largest trading partner, appear to be on track to reach a trade deal, but the exchange rate may face range-bound conditions ahead of the next Reserve Bank of Australia (RBA) meeting on March 5 as the central bank shows a greater willingness to further support the economy.

Image of daily change for major currencies

AUD/USD Rate Forecast: February Range on Radar Ahead of RBA Meeting

Image of daily change for audusd rate

Developments surrounding China may continue to sway AUD/USD as U.S. President Donald Trump pledges to delay the fresh round of tariffs and hold a summit for President Xi Jinping at Mar-a-Lago, but the weakening outlook for global growth may continue to drag on the Australian dollar as ports in China start to ban imports of Australian coal.

Keep in mind, Treasurer Josh Frydenberg has warned against ‘jumping to conclusions,’ with RBA Governor Philip Lowe assuring that the central bank does not expect the recent action ‘to have a dramatic effect on the economy.’ However, efforts to avoid a trade war may do little to boost the economic outlook as the central bank warns that ‘there were significant uncertainties around the forecasts, with scenarios where an increase in the cash rate would be appropriate at some point and other scenarios where a decrease in the cash rate would be appropriate.

Image of rba official cash rate

In fact, Governor Lowe warned that ‘the probability that the next move is up and the probability that it is down are more evenly balanced’ while delivering the semi-annual testimony in front of Parliament, and it seems as though the RBA will adopt a more dovish tone over the coming months amid ‘the protracted period of relatively low growth in aggregate household income.’ In turn, the Australian dollar may face a more bearish fate over the coming months as the RBA stands ready to further reduce the official cash rate (OCR), but recent price action raises the risk for a run at the monthly-high (0.7284) as the aussie-dollar exchange rate reverses course ahead of February-low (0.7054). 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 broader outlook for AUD/USD remains tilted to the downside as the flash-crash rebound stalls at the 200-Day SMA (0.7265), with both price and the Relative Strength Index (RSI) failing to preserve the bullish formations from earlier this year.
  • However, the failed attempt to test the 0.7020 (50% expansion) hurdle brings the monthly-range in focus, with a break/close above the 0.7170 (23.6% expansion) to 0.7180 (61.8% retracement) region raising the risk for a move back towards 0.7230 (61.8% expansion).
  • A break/close above 0.7230 (61.8% expansion) brings the 200-Day SMA (0.7265) back on the radar, with the next area of interest coming in around 0.7320 (50% expansion) to 0.7340 (61.8% retracement).

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.