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AUD/USD Forecast: RSI Offers Bearish Signal Ahead of RBA Meeting

AUD/USD Forecast: RSI Offers Bearish Signal Ahead of RBA Meeting

David Song, Strategist

Australian Dollar Talking Points

AUD/USD remains under pressure ahead of the Reserve Bank of Australia’s (RBA) last meeting for 2019, and recent developments in the Relative Strength Index (RSI) offer a bearish signal as the oscillator snaps the upward trend from August.

AUD/USD Forecast: RSI Offers Bearish Signal Ahead of RBA Meeting

AUD/USD fails to preserve the range bound price action from the last week of November and the exchange rate may continue to give back the advance from the yearly low (0.6671) as China, Australia’s largest trading partner, pledges to retaliate against the Hong Kong Human Rights and Democracy Act of 2019.

Foreign Ministry Spokesperson, Geng Shuang, warns “China will take strong counter-measures in response to the US behavior,” and waning hopes for a US-China trade deal may continue to drag on the Australian Dollar as it puts pressure on the RBA to implement lower interest rates.

Image of DailyFX economic calendar

Nevertheless, the RBA is expected to keep the official cash rate (OCR) at the record low on December 3, and the central bank may tame speculation for a looming rate cut as “the outlook for the Australian economy was little changed since August.”

However, the RBA may continue to insulate the Australian economy in 2020 as Governor Philip Lowe lays out a tentative roadmap for the central bank to deploy quantitative easing (QE).

In turn, a batch of dovish remarks may drag on AUD/USD, and the exchange rate may face a more bearish fate over the remainder of the year as the Federal Reserve appears to be taking a break from its rate easing cycle.

With that said, AUD/USD may continue to give back the advance from the yearly low (0.6671) as recent developments in the Relative Strength Index (RSI) offer a bearish signal.

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AUD/USD Rate Daily Chart

Image of AUD/USD rate 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 (0.6920), with the exchange rate marking another failed attempt to break/close above the moving average in July.
  • A similar scenario appears to have taken shape in November as the correction from the yearly low (0.6671) failed to trigger a test of the simple moving average, which largely lines up with the Fibonacci overlap around 0.6950 (61.8% expansion) to 0.6970 (23.6% expansion).
  • In turn, AUD/USD may extend the decline from the November-high (0.6928) as the exchange rate snaps the upward trend from October.
  • The Relative Strength Index (RSI) highlights a similar dynamic as the oscillator snaps the upward trend from August
  • As a result, lack of momentum to hold above the overlap around 0.6780 (38.2% expansion) to 0.6800 (61.8% expansion) brings the 0.6720 (78.6% expansion) to 0.6730 (50% expansion) region on the radar, with the next area of interest coming in around 0.6680 (61.8% expansion), which lines up with the yearly low (0.6671).

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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.