Australian Dollar Talking Points
AUD/USD trades to a fresh yearly low (0.6542) amid the rapid rise in the number of COVID-19 cases, and the exchange rate may continue to exhibit a bearish behavior as the Relative Strength Index (RSI) pushes deeper into oversold territory.
AUD/USD Slips to Fresh 2020 Low as RSI Dips Deeper into Oversold Zone
AUD/USD extends the decline from earlier this month as the coronavirus presents a greater threat to the Asia/Pacific region, and the outbreak may trigger a response by the Reserve Bank of Australia (RBA) as China, Australia’s largest trading partner, struggles to contain the virus.
The RBA may come under pressure to implement lower interest rates as the shock to the global supply chain dampens the outlook for growth, and the central bank may take steps to insulate the Australian economy as the board remains “prepared to ease monetary policy further if needed.”
However, the ASX 30 Day Interbank Cash Rate Futures shows little expectations for a rate cut, with the March 2020 contract currently highlighting an 11% chance for a reduction in the official cash rate (OCR).
With that said, the RBA may use the March 3 meeting to prepare Australian households and businesses for an imminent rate cut, and the central bank may look to reestablish its rate easing cycle in 2020 as “economic growth was expected to be weaker in the near term than had been forecast three months earlier.”
In turn, AUD/USD may continue to give back the correction from the 2008 low (0.6006), with recent developments in the Relative Strength Index (RSI) warning of a further decline in the exchange rate as the oscillator snaps the bullish formation from earlier this month and pushes deeper into oversold territory.
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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 materialized 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).
- With that said, the opening range for March remains in focus, but the bearish momentum may gather pace over the remainder of the week as Relative Strength Index (RSI) pushes deeper into oversold territory.
- As a result, AUD/USD maycontinue to give back the correction from the 2008 low (0.6006), but need a break/close below the 0.6510 (161.8% expansion) to 0.6540 (78.6% expansion) region to open up the Fibonacci overlap around 0.6410 (100% expansion) to 0.6440 (261.8% expansion).
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— Written by David Song, Currency Strategist
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