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AUD/USD Forecast: RSI Offers Bearish Signal Ahead of Australia CPI

AUD/USD Forecast: RSI Offers Bearish Signal Ahead of Australia CPI

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Australian Dollar Talking Points

AUD/USD carves a series of lower highs and lows following the failed attempt to test the September-high (0.6895), and the exchange rate may continue to give back the advance from the 2019-low (0.6671) as the Relative Strength Index (RSI) offers a bearish signal.

AUD/USD Forecast: RSI Offers Bearish Signal Ahead of Australia CPI

AUD/USD extends the decline from the monthly-high (0.6883) as China Foreign Ministry Spokesperson Hua Chunying insists that the “China-US relationship is currently in a critical stage,” and the ongoing trade negotiations may continue to influence the Australian Dollar as the International Monetary Fund (IMF) cuts its growth forecast for the Asia/Pacific region.

In response, the Reserve Bank of Australia (RBA) may come under pressure to further embark on its rate easing cycle, but the central bank may move to the sidelines at the next meeting on November 5 as the US and China plan to finalize ‘phase one’ of the trade deal ahead of the Asia-Pacific Economic Cooperation (APEC) meetingscheduled for November 15-16.

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At the same time, updates to Australia’s Consumer Price Index (CPI) may encourage the RBA to revert to a wait-and-see approach as the headline reading for inflation is expected to climb to 1.7% from 1.6% per annum in the second-quarter of 2019.

Nevertheless, the RBA may continue to endorse a dovish forward guidance 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.”

In turn, the RBA may reiterate that the central bank stands ready “to ease monetary policy further if needed” amid the weakening outlook for global growth.

It remains to be seen if the RBA will 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,” but recent remarks from Treasurer Josh Frydenberg suggest the government has no plans to draw up a fiscal stimulus package as he insists that “we can still deliver the surplus as promised as well as see the Australianeconomy continue its record run of growth.”

With that said, the RBA may continue to push monetary policy into uncharted territory, and the central bank may favor a further depreciation in the Australian Dollar as Governor Lowe argues that “the exchange rate is a better stabiliser than our own monetary policy.”

As a result, AUD/USD may continue to track the downward trend carried over from 2018, with recent developments in the Relative Strength Index (RSI) warning of a further decline in the exchange rate as the oscillator snaps 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 (0.6959), 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.
  • Moreover, lack of momentum to test the September-high (0.6895) may bring the downside targets on the radar as the Relative Strength Index (RSI) snaps the upward trend from earlier this month and offers a bearish signal..
  • The failed attempt to test the 0.6910 (38.2% expansion) region brings the 0.6800 (61.8% expansion) handle back on the radar, with the next area of interest coming in around 0.6720 (78.6% expansion) to 0.6740 (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.