Australian Dollar Talking Points

AUDUSD holds a narrow range as the Reserve Bank of Australia (RBA) sticks to the sidelines in August, but the ongoing turmoil between the US and China, Australia’s largest trading partner, may continue to drag on the exchange rate as it dampens the outlook for the Asia/Pacific region.

Post-RBA AUDUSD Rebound Mired by Oversold RSI Signal

AUDUSD halts twelve consecutive days of decline as the RBA keeps the official cash rate (OCR) at the record low of 1.00%, and it seems as though the central bank will endorse a wait-and-see approach at the next meeting on September 3 as “growth in Australia is expected to strengthen gradually from here.”

It seems as though the RBA is taking a break from its easing cycle after delivering back-to-back rate cuts, and the central bank may adopt a more balanced tone over the coming months as “the central scenario is for the Australian economy to grow by around 2½ per cent over 2019 and 2¾ per cent over 2020.”

However, the RBA may have little choice but to further insulate the Australian economy amid the growing threat of a currency war, and Governor Philip Lowe & Co. may continue to respond to the weakening outlook for global growth especially as the trade truce between the US and China comes to an end.

With that said, rising tensions between the US and China may continue to drag on AUDUSD, and the exchange rate stands at risk of facing a more bearish fate over the near-term as the Federal Reserve shows little interest in reversing the four rate hikes from 2018.

Keep in mind, the AUDUSD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.7076), with the exchange rate marking another failed attempt to break/close above the moving average in July.

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AUD/USD Rate Daily Chart

The broader outlook for AUDUSD remains tilted to the downside as both price and the Relative Strength Index (RSI) continue to track the bearish formations from late last year.

However, the recent decline in AUDUSD appears to have stalled ahead of the 2019-low (0.6745) , with the exchange rate at risk for a larger rebound as it finally snaps the series of lower highs and lows from the July-high (0.7082).

In turn, a move back above the 0.6800 (61.8% expansion) handle brings the 0.6850 (78.6% expansion) to 0.6880 (23.6% retracement) region on the radar, with the next area of interest coming in around 0.6910 (38.2% expansion).

However, recent developments in the RSI suggest the bearish momentum could still gather pace as the oscillator holds below 30 and lingers in oversold territory.

Need a break/close below the 0.6720 (78.6% expansion) to 0.6730 (100% expansion) area to bring the 0.6620 (100% expansion) hurdle on the radar .

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.