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Australian Dollar Downtrend Curbed By Neutral RBA and Bearish RSI

Australian Dollar Downtrend Curbed By Neutral RBA and Bearish RSI

Daniel Dubrovsky, Strategist

Talking Points:

  • AUDUSD established a consolidation range from late January to early July 2015
  • The Aussie recently broke from its former range to extend a multi-year downtrend
  • Bearish RSI and neutral RBA tempered the pair’s decline since May

For the majority of the second and third quarter of 2014, the Australian Dollar consolidated versus its US namesake while the frequency of RSI extremes decreased. The Relative Strength Index is an oscillator that measures the strength of price movement. When RSI dived into oversold territory for the first time in almost one year, the pair entered a downtrend and broke below its range. We had similar circumstances unfold recenty.

In the first half of 2015, the Aussie consolidated between 0.7580 and 0.8020as can be seen in the chart below. Looking at the Bars Since The Last RSI Extreme indicator, we see the few occurences of the RSI falling below 30 or climbing above 70 since the beginning of the year. Simultaneously, RSI persisted within 10 index points of the “50” midline as AUDUSD traced largely sideways. A lack of clear bullish or bearish gives another view of the Aussie’s constricted performance.

On July 3rd, the pair fell out of its consolidation range while RSI edged closer to 30. A level below 30 suggests that a pair is not only bearish, but potentially oversold. Simultaneously, the pair’s average daily range – a measure of activity - fell to 85 pips, its lowest level since January 21st this year.

The Aussie’s downtrend is overshadowed by RBA’s neutral monetary policy stance. During its May 5th 2015 interest rate decision, the central bank hinted that the chances of further easing in the following months isrelatively low. At the past two policy meetings, the central bank maintained a neutral monetary policy stance and offered no distinct bias for interest rate direction. The next RBA monetary policy announcement will be on August 4th. Until then, the central bank’s tone will likely remain unchanged – from a hold on action with a concern about the high currency. Bearish RSI and a neutral RBA monetary policy outlook may continue to work against the Aussie Dollar’s downside progress.

AUSTRALIAN DOLLAR DOWNTREND

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