Australian Dollar Talking Points
AUDUSD attempts to pare the decline from the previous week as Reserve Bank of Australia (RBA) Governor Philip Lowe offers little hints for an imminent rate cut, but the recent rebound in the exchange rate may prove to be short-lived as the central bank retains a dovish forward guidance for monetary policy.
AUDUSD Rate Outlook Remains Mired as RBA Sticks to Dovish Guidance
AUDUSD climbs to a fresh weekly-high (0.6806) as Governor Lowe states that “the fundamental factors underpinning the longer-term outlook for the Australian economy remain strong,” with the central bank head going onto say that the RBA will “again take stock of the evidence” at the next meeting on October 1.
The comments suggest the RBA will stick to the sidelines following the back-to-back rate cuts as “the Australian economy has strong fundamentals,” but the weakening outlook for global growth may push the central bank to implement lower interest rates as “the Board is prepared to ease monetary policy further if needed.”
As a result, the shift in US trade policy may play an increased role in dictating global monetary policy as China, Australia’s largest trading partner, struggles to reach an agreement with the Trump administration, and the RBA may retain the dovish forward guidance throughout 2019 as the “US–China disputes, in particular, are having a disruptive effect on international trade flows.”
In turn, the Australian dollar may face additional headwinds over the coming months, with the broader outlook still tilted to the downside as AUDUSD continues to track the bearish trend from late last year.
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AUD/USD Rate 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 (0.6998), with the exchange rate marking another failed attempt to break/close above the moving average in July.
- More recently, the rebound from the September-low (0.6688) appears to sputtered ahead of the 0.6910 (38.2% expansion) region, with the exchange rate at risk of exhibiting a more bearish behavior as it struggles to hold above the 0.6800 (61.8% expansion) handle.
- As a result, the Fibonacci overlap around 0.6720 (78.6% expansion) to 0.6730 (100% expansion) remains on the radar, with a break of the 2019-low (0.6677) raising the risk for a move towards 0.6620 (100% expansion).
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— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong.