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AUD/USD Monthly Low on Radar amid Muted Reaction to US-China Deal

Australian Dollar Talking Points

AUD/USD attempts to retrace the decline from the previous week, but the exchange rate may continue to give back the rebound from the monthly low (0.6849) amid the muted reaction to the US-China trade deal.

AUD/USD Monthly Low on Radar amid Muted Reaction to US-China Deal

AUD/USD bounces back ahead of Australia’s Employment report and the fresh updates may keep the exchange rate afloat as the economy is anticipated to add 10.0K jobs in December.

At the same time, the Unemployment Rate is expected to hold steady at 5.2% for the second month, and a positive development may keep the Reserve Bank of Australia (RBA) on the sidelines at its first meeting for 2020 as “members observed that labour market conditions had been broadly unchanged.”

However, the data may do little to influence the monetary policy outlook as “the current rate of wages growth was not consistent with inflation being sustainably within the target range.” In turn, the RBA may continue to respond to the slowdown in global growth and insulate the economy from the shift in US trade policy as China, Australia’s largest trading partner, expands 6.0% in the fourth-quarter of 2019, the lowest reading since the series began in 1992.

With that said, the RBA may continue to endorse a dovish forward guidance on February 4 and prepare Australian households and businesses for lower interest rates as Governor Philip Lowe and Co. insist that the board has “the ability to provide further stimulus.

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As a result, the RBA may continue to push monetary policy into uncharted territory in 2020, and AUD/USD may face a more bearish fate over the coming months as the Federal Reserve moves way from its rate easing cycle.

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AUD/USD Rate Daily Chart

Image of AUD/USD rate daily chart

Source: Trading View

  • AUD/USD has been capped by the 200-Day SMA (0.6887) for most of 2019, but the recent break/close above the moving average signaled a potential shift in market behavior especially as the Relative Strength Index (RSI) pushed into overbought territory for the first time since 2018.
  • However, the bullish momentum appears to be abating as the RSI falls back from overbought territory, with the oscillator snapping the upward trend from December.
  • Keep in mind, the monthly opening range has been a key dynamic for AUD/USD in the fourth quarter of 2019 as the exchange rate carved a major low on October 2, with monthly high for November occurring during the first full week of the month, while the low for December happened on the first day of the month.
  • In turn, the correction from the 2019 low (0.6671) may continue to unravel as it failed to produce a test of the July high (0.7082), with the opening range for 2020 highlighting a similar dynamic as the exchange rate extends the decline from the December high (0.7032).
  • The string of failed attempts to close above 0.6910 (38.2% expansion) may spur a run at the monthly low (0.6849), but need a break/close below the 0.6850 (78.6% expansion) region to open up the 0.6800 (61.8% expansion) handle.
  • Next area of interest coming in around 0.6720 (78.6% expansion) to 0.6730 (100% expansion) followed by the overlap around 0.6630 (100% expansion) to 0.6650 (61.8% expansion).

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— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.