Australian Dollar Talking Points
The recent advance in AUD/USD appears to be stalling ahead of the Reserve Bank of Australia (RBA) Minutes as the exchange rate fails to test the monthly-high (0.7122), and fresh comments from Governor Philip Lowe & Co. may rattle the Australian dollar if the central bank shows a greater willingness to further support the economy.
AUD/USD Rate Fails to Test Monthly-High Ahead of RBA Minutes
AUD/USD stands at risk of facing headwinds ahead of the Federal Reserve interest rate decision as the RBA remains in no rush to normalize monetary policy, and Governor Lowe & Co. may continue to tame bets for higher interest rates as ‘members agreed that there was not a strong case for a near-term adjustment in monetary policy.’
However, the RBA may have little choice but to change its tune over the coming months as ‘trade tensions remained a material risk to the global growth outlook,’ and the policy statement may reveal a material adjustment in the forward-guidance as ‘growth in the Australian economy slowed over the second half of 2018.’
In fact, the RBA may come under pressure to further insulate the economy as the U.S. and China, Australia’s largest trading partner, struggle to reach a trade deal, and a batch of dovish comments may ultimately spark bets for a rate-cut as officials warn that ‘there were significant uncertainties around the forecasts, with scenarios where an increase in the cash rate would be appropriate at some point and other scenarios where a decrease in the cash rate would be appropriate.’
As a result, the recent rebound in AUD/USD may continue to sputter ahead of the monthly-high (0.7122), with the broader outlook tilted to the downside as both price and the Relative Strength Index (RSI) track the bearish trends from earlier this year. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.
AUD/USD Daily Chart
- The recent series of higher highs & lows in AUD/USD keeps the monthly-high (0.7122) on the radar, but lack of momentum to close above the 0.7090 (78.6% retracement) to 0.7110 (78.6% retracement) region may generate range-bound conditions.
- Need a break/close below the 0.7020 (50% expansion) region to bring the downside targets back on the radar, with a break of the monthly-low (0.7003) raising the risk for a move towards 0.6950 (61.8% expansion).
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— Written by David Song, Currency Analyst
Follow me on Twitter at @DavidJSong.