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AUD/USD Eyes September High as China Pledges to Make ’Joint Effort’

AUD/USD Eyes September High as China Pledges to Make ’Joint Effort’

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Australian Dollar Talking Points

AUDUSD extends the advance from the monthly-low (0.6671) amid hopes of a looming US-China trade deal, and the exchange rate appears to be on track the test the September-high (0.6895) as it clears the string of lower highs and lows from the previous week.

AUD/USD Eyes September High as China Pledges to Make ‘Joint Effort’

AUD/USD trades to a fresh monthly high (0.6857) as the US-China trade war appears to be coming to an end, and it seems as though more details will be revealed ahead of the Asia-Pacific Economic Cooperation (APEC) meetingscheduled for November 15-16 as China’s Ministry of Commerce pledges “to make joint efforts to achieve the final agreement.”

Headlines surrounding the negotiation may continue to influence AUD/USD as it encourages the Reserve Bank of Australia (RBA) to revert to a wait-and-see approach, but it remains to be seen if the trade talk will bear fruit as Chinese officials pledge to retaliate to the US blacklist.

Image of RBA interest rate decision

In turn, the RBA may keep the official cash rate (OCR) on hold at the meeting on November 5 as the US and China, Australia’s largest trading partner, plan to finalize ‘phase one’ of the trade deal over the coming days.

However, the RBA may continue to endorse a dovish forward guidance for monetary policy as “the Bank's most recent forecasts suggested that the unemployment and inflation outcomes over the following couple of years were likely to be short of the Bank's goals.”

At the same time, the RBA may push Australian lawmakers to support the economy as Governor Philip Lowe argues for “a renewed focus on structural measures to lift the nation's productivity performance.”

With that said, the RBA is likely to reiterate its pledge “to ease monetary policy further if needed,” and AUD/USD may continue to track the downward trend carried over from 2018 as the central bank keeps the door open to further embark on its rate easing cycle.

Nevertheless, recent price action raises the risk for a run at the September-high (0.6895) as the exchange rate clears the series of lower highs and lows from the previous week, with the Relative Strength Index (RSI) extending the bullish formation from earlier this month.

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AUD/USD Rate Daily Chart

Image of AUD/USD daily chart

Source: Trading View

  • Keep in mind, the AUD/USD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.6968), with the exchange rate marking another failed attempt to break/close above the moving average in July.
  • More recently, AUD/USD has taken out the September-low (0.6688) as it continues to track the downward trend carried over from late last year, with the RSI still capped by highs from earlier this year.
  • However, AUD/USD trades to a fresh monthly-high (0.6857) following the failed attempt to close below the 0.6690 (50% expansion) region, with the break/close above 0.6850 (78.6% expansion) bringing the 0.6910 (38.2% expansion) area on the radar.
  • Next area of interest comes in around 0.6950 (61.8% expansion) to 0.6970 (23.6% expansion), which largely lines up with the 200-Day SMA (0.6968).

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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.