AUDUSD Clings to Monthly Range as China Pushes for ’Calm’ Negotiation


Australian Dollar Talking Points

The monthly range remains on the radar for AUDUSD as the exchange rate reverses course ahead of the August-low (0.6677), and the Australian Dollar may stage a larger rebound over the coming days as China Vice Premier Liu He insists that “we are willing to resolve the problems through negotiation and cooperation in a calm manner.”

AUDUSD Clings to Monthly Range as China Pushes for ‘Calm’ Negotiation

AUDUSD may continue to retrace the decline from earlier this month despite the retaliatory measures taken by China as US President Donald Trump tweets “talks are continuing. ”

Efforts to deescalate the trade war may keep the Reserve Bank of Australia (RBA) on the sidelines as “the central scenario is for the Australian economy to grow by around 2½ per cent over 2019 and 2¾ per cent over 2020.”

Image of RBA interest rate decision

In turn, the RBA may attempt to buy more time at the next meeting on September 3 after delivering back-to-back rate cuts earlier this year, but the central bank may continue to endorse a dovish forward guidance amid little evidence of a looming US-China trade deal.

As a result, Governor Philip Lowe and Co. may continue to strike a cautious tone as “the risks to the global economy remain tilted to the downside,” and the RBA is likely to reiterate its pledge to “ease monetary policy further if needed” amid the weakening outlook for the Asia/Pacific region.

With that said, AUDUSD stands at risk of facing a more bearish fate if the RBA prepares households and businesses for lower interest rates, but recent price action warns of a larger rebound in the exchange rate as Aussie-Dollar reverses course ahead of the August-low (0.6677).

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AUD/USD Rate Daily Chart

Image of audusd daily chart

Source: Trading View

  • Keep in mind, the AUDUSD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.7045), with the exchange rate marking another failed attempt to break/close above the moving average in July.
  • With that said, the broader outlook for AUDUSD remains tilted to the downsideas both price and the Relative Strength Index (RSI) continue to track the bearish formations from late last year.
  • However, the string of failed attempts to close below the Fibonacci overlap around 0.6720 (78.6% expansion) to 0.6730 (100% expansion) raises the risk for a larger rebound, with the exchange rate reversing course ahead of the monthly-low (0.6677).
  • Need a break/close above the 0.6800 (61.8% expansion) handle to open up the former-support zone around 0.6850 (78.6% expansion) to 0.6880 (23.6% retracement), with the next area of interest coming in around 0.6910 (38.2% expansion).

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— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

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