AUD/USD Rate Outlook Mired by Failure to Test September High

AUD/USD Rate Outlook Mired by Failure to Test September High

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Australian Dollar Talking Points

AUD/USD struggles to extend the series of higher highs and lows from the previous week, with the failed attempt to test the September-high (0.6895) bringing the monthly range on the radar.

AUD/USD Rate Outlook Mired by Failure to Test September High

AUD/USD pulls back from the monthly-high (0.6883) as the International Monetary Fund (IMF) updates the Regional Economic Outlook for the Asia/Pacific region, with the report highlighting the risk for a “faster-than-expected slowdown in China,” Australia’s largest trading partner.

Image of IMF Asia Pacific forecast

In response, the IMF forecasts Australia to grow 1.7% in 2019 and 2.3% in 2020, and the weakening outlook for the Asia/Pacific region may push the Reserve Bank of Australia (RBA) to further insulate the economy as the central bank stands ready “to ease monetary policy further if needed.

Nevertheless, the RBA may move to the sidelines at the next meeting on November 5 as the US and China plan to finalize ‘phase one’ of the trade deal, but the central bank may continue to endorse a dovish forward guidance as “the Bank’s most recent forecasts suggested that the unemployment and inflation outcomes over the following couple of years were likely to be short of the Bank’s goals.

At the same time, the RBA may push Australian lawmakers to support the economy as Governor Philip Lowe argues for “a renewed focus on structural measures to lift the nation’s productivity performance.”

However, recent remarks from Treasurer Josh Frydenberg suggest the government has no plans to draw up a fiscal stimulus package as he insists that “we can still deliver the surplus as promised as well as see the Australianeconomy continue its record run of growth.”

Image of RBA interest rate decision

With that said, it remains to be seen if the RBA will deliver another rate cut in 2019, but the central bank may favor a further depreciation in the Australian Dollar as Governor Lowe argues that “the exchange rate is a better stabiliser than our own monetary policy.”

In turn, AUD/USD may continue to track the downward trend carried over from 2018, with the Australian dollar at risk of facing headwinds over the remainder of the year as the RBA keeps the door open to further embark on its rate easing cycle.

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AUD/USD Rate Daily Chart

Image of AUD/USD daily chart

Source: Trading View

  • Keep in mind, the AUD/USD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.6968), with the exchange rate marking another failed attempt to break/close above the moving average in July.
  • More recently, AUD/USD has taken out the September-low (0.6688) as it continues to track the downward trend carried over from late last year, with the RSI still capped by highs from earlier this year.
  • Lack of momentum to test the September-high (0.6895) may bring the downside targets on the radar as the exchange rate struggles to extend the series of higher highs and lows from the previous week.
  • The failed attempt to test the 0.6910 (38.2% expansion) region may spur a move back towards the 0.6800 (61.8% expansion) handle, with the next area of interest coming in around 0.6720 (78.6% expansion) to 0.6740 (38.2% expansion).

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— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

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