Australian Dollar Talking Points
AUD/USD trades to a fresh yearly low (0.6247) as it extends the series of lower highs and lows from last week, and the move below 30 in the Relative Strength Index (RSI) is likely to be accompanied by a further decline in the exchange rate like the price action from last month.
AUD/USD Selloff Pushes RSI Back Into Oversold Territory
AUD/USD registers the longest stretch of decline since September 2020 as it falls for six consecutive days, and the bearish price action may persist as long as the RSI holds in oversold territory.
As a result, AUD/USD may continue to trade to fresh yearly lows as it snaps the range bound price action carried over from the final week of September, and fresh data prints coming out of the US may keep the exchange rate under pressure as the Consumer Price Index (CPI) is anticipated to show persistent inflation.
Looking ahead, the core CPI is expected to increase to 6.5% in September from 6.3% per annum the month prior, and signs of sticky price growth may generate a bullish reaction in the US Dollar as it puts pressure on the Federal Reserve to retain its current approach in combating inflation.
In turn, the Greenback may continue to outperform against its Australian counterpart as the Federal Open Market Committee (FOMC) pursues a restrictive policy, and it remains to be seen if the Fed will deliver another 75bp rate hike at its next interest rate decision on November 2 as the Summary of Economic Projections (SEP) highlight a steeper path for US interest rates.
Until then, developments coming out of the US may sway AUD/USD as the Reserve Bank of Australia (RBA) starts to implement smaller rate hikes, and a further decline in the exchange rate may fuel the tilt in retail sentiment like the behavior seen earlier this year.
The IG Client Sentiment (IGCS) report shows 75.87% of traders are currently net-long AUD/USD, with the ratio of traders long to short standing at 3.14 to 1.
The number of traders net-long is 4.01% lower than yesterday and 7.64% higher from last week, while the number of traders net-short is 0.20% lower than yesterday and 15.14% higher from last week. The crowding behavior has become less skewed despite the rise in net-long interest as 81.57% of traders were net-long AUD/USD last week, while the rise in net-short position comes as the exchange rate extends the series of lower highs and lows from last week.
With that said, the update to the US CPI may drag on AUD/USD should the development fuel speculation for another 75bp Fed rate hike, and the move below 30 in the Relative Strength Index (RSI) is likely to be accompanied by a further decline in the exchange rate like the price action from last month.
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AUD/USD Rate Daily Chart
Source: Trading View
- AUD/USD trades to fresh yearly lows after failing to defend the opening range for October, with the break/close below 0.6290 (161.8% expansion) opening up the 0.6120 (78.6% retracement) to 0.6160 (100% expansion) region as the exchange rate extends the series of lower highs and lows carried over from last week.
- The bearish price action in AUD/USD may persist as the Relative Strength Index (RSI) slips back into oversold territory, with a break/close below the 0.6020 (50% expansion) to 0.6040 (78.6% retracement) area bringing the April 2020 low (0.5980) on the radar.
- However, lack of momentum to test the 0.6120 (78.6% retracement) to 0.6160 (100% expansion) region may push the RSI back above 30, with a move above 0.6290 (161.8% expansion) bringing the 0.6370 (78.6% expansion) area back on the radar.
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— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong