AUD/USD clears the June 2020 low (0.6648) as it trades to a new yearly low (0.6438), and the exchange rate may try to test the May 2020 low (0.6373) as the Relative Strength Index (RSI) moves into oversold territory.
So, the update to Australia's Retail Sales report may not have much of an effect on AUD/USD since household spending is expected to grow by 0.4% in August after increasing by 1.3% in July. The Reserve Bank of Australia (RBA) may change its mind if private consumption slows down. The RBA warns that "the behaviour of household spending continued to be an important source of uncertainty."
In turn, the RBA may change how it normalises monetary policy. The central bank wants to keep the "economy on a level keel." At the next meeting on October 4, Governor Philip Lowe and the other members of the RBA may decide to raise rates by a smaller amount. This is because "members saw a stronger case for a slower rate of increase in interest rates as the level of the cash rate rose."
Until then, the AUD/USD exchange rate could keep going down as long as the RSI stays below 30, and a further drop in the exchange rate could cause a shift in consumer sentiment, like what happened earlier this year.
According to the IG Client Sentiment report, 78.27% of traders are net-long AUD/USD at the moment, and the ratio of traders who are extended to those who are short is 3.60 to 1.
The number of traders with a net long position is up by 3.52% from yesterday and down by 7.14% than last week. The number of traders with a net short position is up by 19.28% from yesterday and down by 9.22% than last week. Last week, 73.85% of traders were net-long AUD/USD. The drop in net-long interest hasn't helped much with the crowding, and the drop in net-short interest comes as the exchange rate trades to a new yearly low (0.6438).
With that in mind, the oversold RSI reading will likely lead to a further drop in AUD/USD, like what happened earlier this year. The exchange rate may try to test the low from May 2020 (0.6373) as it has made lower highs and lows since last week.
AUD/USD Rate Daily Chart
AUD/USD breaks through the June 2020 low (0.6648) and falls to a new yearly low (0.6438). The weakness in the exchange rate pushes the Relative Strength Index (RSI) into "oversold" territory.
As long as the RSI stays below 30, AUD/USD may continue to make a series of lower highs and lows. A close below the Fibonacci overlap around 0.6460 (61.8% retracement) to 0.6530 (61.8% expansion) could lead to a test of the 0.6370 (78.6% expansion) area, which is near the May 2020 low (0.6373).
The next area of interest is around 0.6290 (161.8% growth). Still, the lack of momentum to close below the overlap around 0.6460 (61.8% retracement) to 0.6520 (38.2% expansion) may stop the bearish price action in AUD/USD. A move above 30 in the RSI will likely cause a near-term rise in the exchange rate.
If the series of lower highs and lows don't continue, AUD/USD could go back up to 0.6650 (50% retracement). The next area of interest is between 0.6760 (50% retracement) and 0.6770 (100% expansion).
Comments
Log in or sign up to join the conversation.