Australian Dollar Talking Points
AUD/USD attempts to retrace the decline following the Reserve Bank of Australia (RBA) interest rate decision as it bounces back from a fresh weekly low (0.6956), but the opening range for August raises the scope for a further decline in the exchange rate as it retains the series of lower highs and lows from earlier this week.
Bearish AUD/USD Price Action Takes Shape During August Opening Range
AUD/USD trades back below the 50-Day SMA (0.6957) as the RBA insists that “the size and timing of future interest rate increases will be guided by the incoming data,” and it remains to be seen if the updated Statement on Monetary Policy (SMP) will influence the Australian Dollar as the central bank remains “committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”
As a result, hints of a looming shift in the forward guidance for monetary policy may keep AUD/USD under pressure if the RBA show a greater a willingness to winddown its hiking cycle, and Governor Philip Lowe and Co. may look to endorse a wait-and-see approach ahead of 2023 as “inflation is expected to peak later this year.”
Nevertheless, the RBA may retain its current path in implement higher interest rates as “the Board expects to take further steps in the process of normalising monetary conditions,” and the SMP may shore up the Australian Dollar should the central bank prepare Australian households and businesses for another 50bp rate hike.
Until then, AUD/USD may continue to give back the advance form the yearly low (0.6681) as it fails to snap the series of lower highs and lows from earlier this week, and a further decline in the exchange rate may fuel the tilt in retail sentiment like the behavior seen during the previous month.
The IG Client Sentiment report shows 57.38% of traders are currently net-long AUD/USD, with the ratio of traders long to short standing at 1.35 to 1.
The number of traders net-long is 4.41% lower than yesterday and 3.87% higher from last week, while the number of traders net-short is 11.29% higher than yesterday and 8.32% lower from last week. The crowding behavior appears to be slowing despite the rise in net-long interest as 58.83% of traders were net-long AUD/USD last week, while the decline in net-short position comes as the exchange rate bounces back from a fresh weekly low (0.6956).
With that said, AUD/USD may attempt to retrace the decline following the RBA meeting if manages to clear the series of higher highs and lows from earlier this week, but the advance form the yearly low (0.6881) may continue to unravel as the exchange rate struggles to push back above the 50-Day SMA (0.6957).
AUD/USD Rate Daily Chart
Source: Trading View
- AUD/USD appeared to be unfazed by the 50-Day SMA (0.6957) as it cleared the July high (0.7032) earlier this week, but the exchange rate struggles to hold above the moving average after failing to break/close above the 0.7050 (38.2% retracement) to 0.7070 (61.8% expansion) region.
- Lack of momentum to hold above 0.6940 (78.6% expansion) may push AUD/USD back towards the 0.6820 (23.6% retracement) region, with the next area of interest coming in around 0.6760 (50% retracement) to 0.6770 (100% expansion).
- Failure to defend the yearly low (0.6681) brings the June 2020 low (0.6648) on the radar, with the next area of interest coming in around 0.6460 (61.8% retracement) to 0.6520 (38.2% expansion).
— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong