AUD/USD defends March low ahead of RBA and FOMC rate decisions

AUD/USD Outlook

AUD/USD appears to be defending the March low (0.6565) as it extends the rebound from last month’s low (0.6574), but the Reserve Bank of Australia (RBA) interest rate decision may do little to prop up the exchange rate as the central bank is expected to retain the current policy.

AUD/USD defends March low ahead of RBA and FOMC rate decisions

AUD/USD may push towards the 50-Day SMA (0.6693) as it initiates a series of higher highs and lows, and it remains to be seen if the exchange rate will respond to the negative slope in the moving average amid the ‘death cross’ formation from last month.

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Looking ahead, the RBA rate decision may drag on the Australian Dollar as the central bank is anticipated to keep the cash rate target at 3.60%, and more of the same from Governor Philip Lowe and Co. may undermine the recent rebound in AUD/USD as the Federal Reserve is expected to deliver a 25bp rate hike later this week.

However, the RBA may keep the door open to pursue a more restrictive policy as the ‘Board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target,’ and a hawkish forward guidance may keep AUD/USD afloat amid speculation for a looming shift in Fed policy.

Source: CME

According to the CME FedWatch Tool, market participants are still pricing lower interest rates before the end of the year, and a shift in the Fed’s forward guidance may fuel the recent rebound in AUD/USD should the central bank prepare US households and businesses for a change in regime.

Until then, the RBA rate decision may sway AUD/USD as the board assesses ‘when and how much further interest rates need to increase,’ with recent price action raising the scope for a near-term rebound in the exchange rate as it appears to be defending the March low (0.6565).

With that said, AUD/USD may push towards the 50-Day SMA (0.6693) as it initiates a series of higher highs and lows, but the exchange rate may track the negative slope in the moving average if it struggles to trade back above the indicator.

Australian Dollar Price Chart – AUD/USD Daily

Chart Prepared by David Song, Strategist; AUD/USD on TradingView

• AUD/USD appeared to be on track to test the March low (0.6565) as the 50-Day SMA (0.6693) crossed below the 200-Day SMA (0.6735) to establish a ‘death cross’ formation, but the rebound from the April low (0.6574) may push the exchange rate toward the moving averages as it initiates a series of higher highs and lows.
• Need a close above 0.6660 (50% Fibonacci retracement) to raise the scope for a test of the 50-Day SMA (0.6693), with a move above the 200-Day SMA (0.6735) bringing the April high (0.6806) on the radar.
• Nevertheless, AUD/USD may track the negative slope in the moving averages if it fails to defend the March low (0.6565), with a break/close below the 0.6510 (38.2% Fibonacci retracement) to 0.6550 (61.8% Fibonacci retracement) area opening up the 0.6380 (78.6% Fibonacci retracement) region.

Additional Resources

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--- Written by David Song, Strategist