AUD/USD Rate Rebound in Focus Ahead of RBA Minutes as RSI Recovers

Australian Dollar Talking Points

AUD/USD appears to be stuck in a narrow range ahead of the Reserve Bank of Australia (RBA) Minutes, but the exchange rate may extend the advance from the monthly low (0.6662) as the Relative Strength Index (RSI) recovers from oversold territory.

AUD/USD Rebound in Focus Ahead of RBA Minutes as RSI Recovers

The recent rebound in AUD/USDappears to have sputtered ahead of the monthly high (0.6774), and the exchange rate may face range-bound conditions over the coming days as the RBA appears to be in no rush to alter the forward guidance for monetary policy.

The transcript from the first meeting for 2020 may highlight a wait-and-see approach as the “central scenario is for the Australian economy to grow by around 2¾ per cent this year and 3 per cent next year,” and the RBA may attempt to buy more time at its next meeting on March 3 amidsigns that the slowdown in global growth that started in 2018 is coming to an end.”

In turn, the RBA Minutes may keep AUD/USD afloat as the central bank tames speculation for lower interest rates and emphasizes that “the easing of monetary policy last year is supporting employment and income growth in Australia and a return of inflation to the medium-term target range.

However, the coronavirus may become a growing concern for the RBA as China, Australia’s largest trading partner, struggles to contain the outbreak, and the central bank may come under pressure to further insulate the economy as Governor Philip Lowe and Co. insist that the board “remains prepared to ease monetary policy further if needed.”

With that said, AUD/USD may face a more bearish fate over the coming months as the weakening outlook for the Asia/Pacific region raises the scope for a wider interest rate disparity between Australia and the US.

Nevertheless, recent developments in the Relative Strength Index (RSI) warns of a larger rebound in AUD/USD as the oscillator recovers from oversold territory and carves a bullish formation.

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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 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.
  • The opening range for 2020 showed a similar scenario as AUD/USD marked the high of the month on January 2, and recent price action keeps the downside on the radar as the exchange rate clears the 2019 low (0.6671).
  • As a result, AUD/USD may consolidate over the coming days as the recent rebound appears to have stalled ahead of the monthly high (0.6774), but developments in the Relative Strength Index (RSI) raises the scope for a larger rebound in the exchange rate as the oscillator recovers from oversold territory and carves a bullish formation.
  • A closing price above the Fibonacci overlap around 0.6720 (78.6% expansion) to 0.6730 (100% expansion) may spur a run at the monthly high (0.6774), with the next area of interest coming in around the 0.6800 (61.8% expansion) handle.
  • Need a break/close below the 0.6620 (100% expansion) to 0.6650 (61.8% expansion) region to bring the downside back on the radar, with the next hurdle coming in around 0.6510 (161.8% expansion) to 0.6540 (78.6% expansion).

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— Written by David Song, Currency Strategist

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