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AUD/USD Rate Clears 2008 Low Ahead of RBA Announcement

Australian Dollar Talking Points

AUD/USD takes out the 2008 low (0.6006) on the back of US Dollar strength, and the exchange rate may continue to exhibit a bearish behavior as the Relative Strength Index (RSI) sits in oversold territory.

AUD/USD Rate Clears 2008 Low Ahead of RBA Announcement

AUD/USD trades to a fresh yearly low (0.5959) as the growing number of COVID-19 cases heightens the appeal of safe-have assets, and the Australian Dollar may face additional headwinds over the next 24-hours of trade as the Reserve Bank of Australia (RBA) “will announce further policy measures to support the Australian economy on Thursday.

Image of RBA interest rate decisions

The RBA appears to be on track to reduce the official cash rate (OCR) to a fresh record-low even though Prime Minister Scott Morrison pledges to provide additional fiscal support as the minutes from the March meeting warn that “the more realistic scenario being that the outbreak would have a significant effect on the Australian economy.”

It remains to be seen if Governor Philip Lowe and Co. will resort to a zero-interest rate policy (ZIRP) as the OCR approaches the effective lower bound (ELB), and the central bank may deploy unconventional tools over the coming months as “the Reserve Bank stands ready to purchase Australian government bonds in the secondary market to support the smooth functioning of that market.”

In turn, AUD/USD may continue to search for support as it clears the 2008 low (0.6006), and the exchange rate may face more bearish fate over the coming days as the Relative Strength Index (RSI) sits in oversold territory.

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AUD/USD Rate Daily Chart

Image of AUD/USD rate daily chart

Source: Trading View

  • 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 the high for November occurring during the first full week of the month, while the low for December materialized on the first day of the month.
  • The opening range for 2020 showed a similar scenario as AUD/USD marked the high of the month on January 2, with the exchange rate carving the February high during the first week of the month.
  • However, the opening range for March was less relevant, with the high of the month occurring on the 9th, the same day as the flash crash.
  • Nevertheless, recent price action casts a bearish outlook for AUD/USD as the exchange rate extends the series of lower highs and lows from the previous week, while the Relative Strength Index (RSI) holds below 30 and sits in oversold territory.
  • The break below the 2008 low (0.6006) brings the 0.5900 (100% expansion) handle on the radar, with the next area of interest coming in around 0.5710 (161.8% expansion) to 0.5730 (361.8% expansion).

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— Written by David Song, Currency Strategist

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