Australian Dollar Traders to Take Cues from RBA, US-China Trade News

Australian Dollar Talking Points

AUD/USD gaps higher to kick off the last full week of November, but fresh comments coming out of the Reserve Bank of Australia (RBA) may drag on the exchange rate as the central bank keeps the door open to implement lower interest rates.

Australian Dollar Traders to Take Cues from RBA, US-China Trade News

AUD/USD carves a fresh series of lower highs and lows despite renewed hopes for a US-China trade deal, and the Australian Dollar may continue to give back the rebound from the monthly low (1.0989) as RBA officials are scheduled to speak over the coming days.

RBA Deputy Governor Guy Debelle and Governor Philip Lowe are likely to endorse a dovish forward guidance as the board remains “prepared to ease monetary policy further if needed. As a result, talks of ‘unconventional’ policy tools may drag on the Australian Dollar as the central bank appears to be on track to push the official cash rate (OCR) closer to zero.

It remains to be seen if Governor Lowe and Co. will retain the current policy at its last meeting for 2019 as officials gauge “the effects of the earlier monetary easing,” but the central bank may ultimately prepare Australian households and businesses for lower interest rates as the RBA Minutes revealed that “members reviewed the case for a further reduction at the present meeting.”

In turn, a batch of dovish comments may produce headwinds for the Australian Dollar, and developments surrounding “phase one” of the US-China trade negotiations may also influence the exchange rate amid little signs of an imminent deal.

With that said, AUD/USD may face a more bearish fate ahead of the next RBA meeting on December 3, and the monthly opening range keeps the downside targets on the radar as the exchange rate pullbacks ahead of the October-high (0.6930).

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AUD/USD Rate Daily Chart

Image of AUD/USD rate daily chart

Source: Trading View

  • Keep in mind, the AUD/USD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.6929), with the exchange rate marking another failed attempt to break/close above the moving average in July.
  • A similar scenario appears to be taking shape in November as the correction from the yearly low (0.6671) fails to spur a test of the simple moving average, which largely lines up with the Fibonacci overlap around 0.6950 (61.8% expansion) to 0.6970 (23.6% expansion).
  • In turn, the monthly opening range raises the scope for a further decline in AUD/USD as the exchange rate pullback changes course ahead of the October-high (0.6930) and snaps the upward trend from the previous month.
  • Will keep a close eye on the Relative Strength Index (RSI) as it continues to track the upward trend carried over from August, but the oscillator may offer a bearish signal should the indicator snap trendline support.
  • As a result, lack of momentum to hold above the 0.6800 (61.8% expansion) handle may open up the Fibonacci overlap around 0.6720 (78.6% expansion) to 0.6730 (50% expansion), with the next area of interest coming in around 0.6680 (61.8% expansion), which lines up with the yearly low (0.6671).

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— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

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