Australian Dollar Talking Points
The Reserve Bank of Australia (RBA) Minutes may influence AUD/USD ahead of the Federal Reserve interest rate decision on September 16 as Governor Philip Lowe and Co. “consider how further monetary measures could support the recovery.”
AUD/USD Rate Rebound Stalls Ahead of RBA Minutes with FOMC on Tap
AUD/USD appears to be stuck in a narrow range after reversing ahead of the 50-Day SMA (0.7162), but fresh remarks from the RBA may rattle the rebound from the monthly low (0.7192) as the central bank warns that the economic recovery is “likely to be both uneven and bumpy.”
Hints of additional monetary support may produce a bearish reaction in the Australian Dollar as the RBA insists that “the yield target will remain in place until progress is being made towards the goals for full employment and inflation,” and the central bank may show a greater willingness to expand the scope of its emergency tool as “further purchases will be undertaken as necessary.”
However, it remains to be seen if the RBA Minutes will reveal a shift in the forward guidance as the central bank rules out a negative interest rate policy (NIRP) for Australia, and more of the same from Governor Lowe and Co. may prop up AUD/USD ahead of the Federal Open Market Committee (FOMC) rate decision as current market trends remain in place.
The IG Client Sentiment report shows the retail crowd has been net-short AUD/USD since April, with 41.74% of traders currently net-long the pair as the ratio of traders short to long stands at 1.40 to 1. The number of traders net-long is 1.22% lower than yesterday and 0.34% higher from last week, while the number of traders net-short is 6.91% higher than yesterday and 9.65% higher from last week.
Net-long interest appears to be holding steady as AUD/USD trades in a narrow range after reversing ahead of the 50-Day SMA (0.7162), but the rise in net-short position suggests the crowding behavior in the US Dollar will persist even though the Federal Reserve’s balance sheet climbs back above $7 trillion in August.
With that said, AUD/USD may continue to exhibit a bullish trend as it trades to a fresh yearly high (0.7414) in September, but the 50-Day SMA (0.7162) remains on the radar as the exchange rate threatens the upward trend established in late-June.
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AUD/USD Rate Daily Chart
Source: Trading View
- Keep in mind, the advance from the 2020 low (0.5506) gathered pace as AUD/USD broke out of the April range, with the exchange rate clearing the January high (0.7016) in June as the Relative Strength Index (RSI) pushed into overbought territory.
- AUD/USD managed to clear the June high (0.7064) in July even though the RSI failed to retain the upward trend from earlier this year, with the exchange rate pushing to fresh yearly highs in August and September to trade at its highest level since 2018.
- Recent developments in the RSI instilled a bullish outlook for AUD/USD as it threatened the downward trend from earlier this year to push into overbought territory for the fourth time in 2020, but a textbook sell-signal has emerged as the indicator quickly slipped back below 70.
- In turn, the bullish momentum may continue to abate following the failed attempt to test the July 2018 high (0.7484), with the 50-Day SMA (0.7162) on the radar for AUD/USD as it threatens the upward trend established in June.
- Failure to hold above the 0.7270 (23.6% expansion) region may push AUD/USD back towards 0.7180 (61.8% retracement), with the next area of interest coming in around 0.7090 (78.6% retracement) to 0.7140 (23.6% retracement), which largely lines up with the 50-Day SMA (0.7162).
- At the same time, a larger rebound in AUD/USD may bring the Fibonacci overlap around 0.7370 (38.2% expansion) to 0.7390 (38.2% expansion) back on the radar as the exchange rate clings to trendline support, with a break above the 2020 high (0.7414) opening up the 0.7480 (50% expansion) region.
--- Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong
