Australian Dollar Talking Points

AUD/USD trades to a contemporary month-to-month excessive (0.7014) because it initiates a sequence of increased highs and lows, and the alternate charge might proceed to understand forward of the Reserve Bank of Australia (RBA) rate of interest determination on August 2 because it holds above the 50-Day SMA (0.6968).

AUD/USD Holds Above 50-Day SMA Ahead of RBA Rate Decision

Unlike the worth motion in June, the current advance in AUD/USD seems to be unfazed by the shifting common, and the alternate charge might stage a bigger restoration over the approaching days because the surprising contraction in US GDP places stress on the Federal Reserve to winddown its mountaineering cycle.

Meanwhile, the RBA is predicted to ship one other 50bp charge hike because the central financial institution insists that “the Australian economy remains resilient,” and it appears as if Governor Philip Lowe and Co. will implement increased rates of interest all through the rest of the 12 months because the “Board expects to take further steps in the process of normalising monetary conditions.”

As a end result, the RBA might proceed to organize Australian households and companies for increased rates of interest because the minutes from the July assembly reveal that “estimates of the nominal neutral rate were above the cash rate in the decade prior to the pandemic,” nevertheless it appears as if the board is in no rush to implement a restrictive coverage as “inflation is forecast to peak later in 2022.”

In flip, a shift within the RBA’s ahead steerage for financial coverage might drag on AUD/USD if the central financial institution delivers a dovish charge hike, whereas the lean in retail sentiment appears poised to persist forward of the speed determination amid the decline in open curiosity.

Image of IG Client Sentiment for AUD/USD rate

The IG Client Sentiment report exhibits 58.83% of merchants are presently net-long AUD/USD, with the ratio of merchants lengthy to brief standing at 1.43 to 1.

The quantity of merchants net-long is 1.84% increased than yesterday and three.57% decrease from final week, whereas the quantity of merchants net-short is 15.32% decrease than yesterday and a pair of.40% decrease from final week. The decline in net-long curiosity has achieved little to alleviate the crowing habits as 55.76% of merchants had been net-long AUD/USD earlier this week, whereas the decline in net-short place comes because the alternate charge pushes to a contemporary month-to-month excessive (0.7014).

With that stated, AUD/USD might stage a bigger restoration forward of the RBA assembly because it initiates a sequence of increased highs and lows, and the alternate charge might proceed to retrace the decline from the June excessive (0.7283) because it holds above the 50-Day SMA (0.6968).

AUD/USD Rate Daily Chart

Image of AUD/USD rate daily chart

Source: Trading View

  • AUD/USD might proceed to carve a sequence of increased highs and lows because the 50-Day SMA (0.6968) fails to curb the current advance within the alternate charge, with a break/shut above the 0.7050 (38.2% retracement) to 0.7070 (61.8% growth) area bringing the Fibonacci overlap round 0.7130 (61.8% retracement) to 0.7180 (61.8% retracement) on the radar.
  • Next space of curiosity is available in round 0.7260 (38.2% growth), with a break above the June excessive (0.7283) opening up the 0.7370 (38.2% growth) to 0.7420 (23.6% retracement) area.
  • However, failure to interrupt/shut above the 0.7050 (38.2% retracement) to 0.7070 (61.8% growth) area might preserve AUD/USD inside an outlined vary, with a transfer beneath 0.6940 (78.6% growth) bringing the 0.6820 (23.6% retracement) space again on the radar.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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