AUD/USD rate outlook hinges on RBA’s forward policy guidance

Australian Dollar Talking Points

AUD/USD tries to break last week’s range-bound price action as it comes up against the October high (0.7556), and the interest rate decision of the Reserve Bank of Australia (RBA) could fuel the recent rise in the exchange rate if the central bank adjusts the forward guidance of monetary policy.

AUD/USD rate outlook hinges on RBA’s forward policy guidance

AUD/USD is trading at a new yearly high (0.7556) as commodity bloc currencies continue to outperform their major counterparts, and the Aussie dollar may attempt to retrace the decline from the high. June (0.7775) as the 50-day SMA (0.7267) establishes a positive slope.

Looking ahead, the RBA is expected to keep the official exchange rate (OCR) at 0.10% in April as the board pledges to “not raise the cash rate until actual inflation is sustainably within the 2-3% target rangeand more from the central bank could rattle the recent rally in AUD/USD as the Federal Reserve plans to deliver a series of rate hikes over the next few months.

However, the RBA could prepare Australian households and businesses for an imminent change in monetary policy as governor Phillip Lowe acknowledges that “it is plausible that the cash rate will be increased later this yearr”, and a change in the forecast may generate a short-term breakout of AUD/USD as it hits October high (0.7556).

In turn, AUD/USD may attempt to retrace the decline from the June high (0.7775)but further appreciation of the exchange rate could fuel the recent reversal in conservation sentiment, similar to the behavior seen the previous year.

the IG Customer Opinion Report watch only 30.56% of traders are currently long fillet AUD/USD, with the ratio of short to long traders upright at 2.27 to 1.

The number of net long traders is 1.55% higher than yesterday and 5.31% higher than last week, while the number of net short traders is 13.35% higher than yesterday. yesterday and 11.23% higher than last week. The increase in the net long position comes as AUD/USD appears to be breaking out of a tight range, while the jump in net-short interest suggests that the crowding behavior will persist over the next few days as 30 .76% of traders were net long the pair last week.

That said, the RBA’s rate decision could fuel AUD/USD’s recent advance if the central bank shows greater willingness to shift gears, but failure to erase the October high (0.7556) could lead to a short-term decline in the exchange rate as the Relative Strength Index (RSI) continues to hold below overbought territory.

AUD/USD daily rate chart

Source: Commercial view

• AUD/USD collided October high (0.7556) As is is trading above the 200-day SMA (0.7296) for the first time since June 2021with a break/closing above the Area from 0.7560 (50% expansion) to 0.7570 (78.6% retracement) bringing the region of 0.7640 (38.2% retracement) onto the radar.
• The next area of ​​interest lies around 0.7720 (38.2% expansion) to 0.7740 (61.8% expansion), followed by the June high (0.7775)but lacks momentum to clear the October high (0.7556) could lead to a short-term pullback AUD/USD as the the recent rise in the exchange rate has failed to push Relative Strength Index (RSI)in overbought territory.
• Don’t stand above the The 0.7440 region (23.6% expansion) could push AUD/USD back towards 0.7370 (38.2% expansion), with a break below the 200-day SMA (0.7296) bringing the 0.7260 zone (38.2% expansion) back to the radar.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong