Skip to Content
News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
More View More
AUD/USD Forecast: Wait-and-See RBA to Give Way to Bear Flag Formation

AUD/USD Forecast: Wait-and-See RBA to Give Way to Bear Flag Formation

David Song, Strategist

Australian Dollar Talking Points

AUD/USD snaps a four day losing streak ahead of the Reserve Bank of Australia (RBA) meeting, but the interest rate decision may do little to alter the near-term outlook for the Australian Dollar as the central bank is expected to retain the current policy in April.

AUD/USD Forecast: Wait-and-See RBA to Give Way to Bear Flag Formation

AUD/USD attempts to retrace the decline from the previous week, with the exchange rate clearing the series of lower highs and lows, and the RBA meeting may help to prop up the Australian Dollar as the central bank appears to be on track to keep the official cash rate (OCR) at the record low of 0.25%.

Image of RBA interest rate decisions

Source: RBA

It seems as though the RBA is reluctant to implement a zero interest rate policy (ZIRP) as Governor Philip Lowe and Co. insist that “the cash rate was now at its effective lower bound,” and the central bank may continue to tame speculation for lower borrowing costs as “members had no appetite for negative interest rates.”

In turn, the RBA may merely attempt to buy time as “the term funding scheme and the three-year bond yield target were both significant policy developments that would not have been under consideration in normal times,” and the central bank may offer little guidance as Governor Lowe and Co. pledge to purchase Australian government bonds for “as long as market conditions warrant.”

It remains to be seen if the RBA will continue to push monetary policy into uncharted territory as officials rely on their non-standard tools to support the Australian economy, but more of the same from the central bank may do little to influence the near-term outlook for AUD/USD as “it was likely that Australia would experience a very material contraction in economic activity, which would spread across the March and June quarters and potentially longer.”

As a result, the recent rebound in AUD/USD may end up being short lived, and the exchange rate may continue to give back the advance from the yearly low (0.5506) as a bear flag formation unfolds.

Forex for Beginners
Forex for Beginners
Recommended by David Song
Forex for Beginners
Get My Guide

Sign up and join DailyFX Currency Strategist David Song LIVE for an opportunity to discuss potential trade setups.

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 the high for November occurring during the first full week of the month, while the low for December materialized 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, with the exchange rate carving the February high during the first week of the month.
  • However, the opening range for March was less relevant, with the high of the month occurring on the 9th, the same day as the flash crash.
  • With that said, the rebound from the yearly low (0.5506) may continue to evolve as AUD/USD snaps the series of lower highs and lows from the previous week, with a move above the April high (0.6185) raising the scope for a larger recovery in the exchange rate.
  • Nevertheless, the string of failed attempts to close above the Fibonacci overlap around 0.6190 (78.6% expansion) to 0.6210 (78.6% expansion) along with the break of channel support may bring the downside targets back on the radar as a bear flag formation unfolds, with the close below 0.6020 (50% expansion) opening up the 0.5880 (261.8% expansion) to 0.5900 (100% expansion) region.
  • Next area of interest comes in around 0.5710 (161.8% expansion) followed by the 0.5520 (61.8% expansion) area, which largely lines up with the yearly low (0.5506).
Traits of Successful Traders
Traits of Successful Traders
Recommended by David Song
Traits of Successful Traders
Get My Guide

--- 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.

DISCLOSURES