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AUD/USD Analysis: Post RBA Rebound Brings RSI Back from Oversold Zone

AUD/USD Analysis: Post RBA Rebound Brings RSI Back from Oversold Zone

2020-02-06 06:00:00
David Song, Currency Strategist
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Australian Dollar Talking Points

AUD/USD has reversed course ahead of the 2019 low (0.6671) and the exchange rate may extend the series of higher highs and lows from earlier this week as the Relative Strength Index (RSI) bounces back from oversold territory.

AUD/USD Forecast: Post RBA Rebound Brings RSI Back from Oversold Zone

AUD/USD extends the rebound following the Reserve Bank of Australia’s (RBA) first meeting for 2020, and the reaction raises the scope for a near-term correction in the Australian Dollar as the central bank tames speculation for lower interest rates.

Recent remarks from the RBA suggest the central bank will stick to a wait-and-see approach for the foreseeable future as “the central scenario is for the Australian economy to grow by around 2¾ per cent this year and 3 per cent next year, which would be a step up from the growth rates over the past two years.

Image of RBA interest rate decision

It seem as though the RBA is in no rush to alter its stance as “the bushfires and the coronavirus outbreak will temporarily weigh on domestic growth,” and Governor Philip Lowe and Co. may continue to buy time at the next meeting on March 2 amid the “long and variable lags in the transmission of monetary policy.”

Nevertheless, the RBA may continue to emphasize that the board “remains prepared to ease monetary policy further if needed” as China, Australia’s largest trading partner, expands 6.0% in the fourth-quarter of 2019, the lowest reading since the series began in 1992.

It remains to be seen if the RBA will further insulate the economy in 2020 amid the weakening outlook for global growth, and AUD/USD may face a more bearish fate over the coming months as the Federal Reserve moves way from its rate easing cycle.

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However, AUD/USD may stage a near-term correction as the decline from the start of the year fails to generate a test of the 2019 low (0.6671), and the exchange rate may extend the series of higher highs and lows from earlier this week as the Relative Strength Index (RSI) bounces back from oversold territory.

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AUD/USD Rate Daily Chart

Image of AUD/USD rate daily chart

Source: Trading View

  • Keep in mind, the monthly opening range has been a key dynamic for AUD/USD in the fourth quarter of 2019 as the exchange rate carved a major low on October 2, with monthly high for November occurring during the first full week of the month, while the low for December happened on the first day of the month.
  • The opening range for 2020 showed a similar scenario as AUD/USD marked the high of the month on January 2, and recent price action raises the scope for a near-term correction as the exchange rate reverses course ahead of the 2019 low (0.6671).
  • The Relative Strength Index (RSI) also raises the scope for a larger rebound in AUD/USD as the oscillator bounces back from oversold territory.
  • The move above the Fibonacci overlap around 0.6720 (78.6% expansion) to 0.6730 (100% expansion) may spur a move towards the 0.6800 (61.8% expansion) handle, with the next region of interest coming in around 0.6850 (78.6% 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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