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AUDUSD Breakout Brings Former Support Zone on Radar

AUDUSD Breakout Brings Former Support Zone on Radar

David Song, Strategist

Australian Dollar Talking Points

AUDUSD climbs to a fresh monthly-high (0.6830) as the US and China plan to hold trade talks in October, and the exchange rate may stage a larger rebound over the coming days as it extends the series of higher highs and lows from earlier this week.

AUDUSD Breakout Brings Former Support Zone on Radar

AUDUSD breaks out of the range-bound price action from August as China Vice Premier Liu He plans to visit the US next month, and the development may keep the Australian dollar afloat as it encourages the Reserve Bank of Australia (RBA) to retain a wait-and-see approach for monetary policy.

Image of RBA official cash rate

It seems as though the RBA is in no rush to further insulate the economy following the back-to-back rate cuts, and the central bank may stick to the same script at the next meeting on October 1 as “growth in Australia is expected to strengthen gradually to be around trend over the next couple of years.”

The update to the Gross Domestic Product (GDP) report may push the RBA to adopt a more balanced tone as the economy expands 1.4% per annum in the second quarter of 2019, but little indications of a looming US-China trade deal may force the central bank to further embark on its rate easing cycle as Governor Philip Lowe and Co. pledge to “ease monetary policy further if needed.”

With that said, the ongoing negotiations between the US and China, Australia’s largest trading partner, may continue to produce headwinds for the Australian dollar amid the weakening outlook for global growth, but recent price action brings the former-support zone around 0.6850 (78.6% expansion) to 0.6880 (23.6% retracement) on the radar as the exchange rate extends the bullish sequence from earlier this week.

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AUD/USD Rate Daily Chart

Image of audusd daily chart

Source: Trading View

  • Keep in mind, the AUDUSD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.7025), with the exchange rate marking another failed attempt to break/close above the moving average in July.
  • With that said, the broader outlook for AUDUSD remains tilted to the downsideas both price and the Relative Strength Index (RSI) continue to track the bearish formations from late last year.
  • However, AUDUSD may stage a larger rebound over the coming days as it breaks out of the range-bound price action from the previous month, with the failed attempt to test the August-low (0.6677) bringing the former-support zone on the radar as the exchange rate extends the series of higher highs and lows from earlier this week.
  • The close above the 0.6800 (61.8% expansion) handle opens up the Fibonacci overlap around 0.6850 (78.6% expansion) to 0.6880 (23.6% retracement), with the next area of interest coming in around 0.6910 (38.2% expansion).

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--- Written by David Song, Currency Strategist

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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