AUD/USD rate outlook mired by failure to test 200-Day SMA

AUD/USD Outlook

AUD/USD appears to be reversing course ahead of the 200-Day SMA (0.6768) as it fails to clear the week high (0.6717), but data prints coming out of Australia may prop up the exchange rate as job growth is expected to rebound in February.

AUD/USD rate outlook mired by failure to test 200-Day SMA

AUD/USD largely mirrors the weakness across the commodity bloc currencies as it gives back the advance from the monthly low (0.6565), and the exchange rate may track the negative slope in the long-term moving average as the Reserve Bank of Australia (RBA) seems to be nearing the end of its hiking-cycle.

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Nevertheless, the update to Australia’s Employment report may generate a bullish reaction in AUD/USD as the economy is anticipated to add 48.5K jobs in February, and a positive development may push the RBA to pursue a more restrictive policy as the ‘Board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target.’

As a result, the RBA may implement for another 25bp rate hike at its next meeting on April 4, but it remains to be see if Australia’s Employment report will influence the monetary policy outlook as Governor Philip Lowe acknowledges that ‘we are closer to the point where it will be appropriate to pause interest rate increases to allow more time to assess the state of the economy.’

In turn, AUD/USD may face headwinds ahead of the next RBA rate decision as Governor Lowe and Co. prepare Australian households and businesses for a wait-and-see approach, and the exchange rate may struggle to retain the advance from the monthly low (0.6565) amid the failed attempt to clear the week high (0.6717).

With that said, a rebound in Australia Employment may curb the recent decline in AUD/USD at it puts pressure on the RBA to pursue a more restrictive policy, but the exchange rate may largely track the negative slope in the 200-Day SMA (0.6768) as it holds below the moving average.

Australian Dollar Price Chart – AUD/USD Daily

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

• AUD/USD bounced back from a fresh yearly low (0.6565) during the previous week to keep the Relative Strength Index (RSI) out of oversold territory, but the exchange rate appears to be reversing course ahead of the 200-Day SMA (0.6768) amid the failed attempt to clear the week high (0.6717).
• AUD/USD may track the negative slope in the long-term moving average following the dip below the 0.6600 (23.6% Fibonacci retracement) handle, with a move below the monthly low (0.6565) opening up the 0.6520 (38.2% Fibonacci retracement) to 0.6550 (61.8% Fibonacci retracement) area.
• However, failure to test the monthly low (0.6565) may keep AUD/USD within the March range, with a move above 0.6660 (50% Fibonacci retracement) raising the scope for another run at the long-term moving average.

--- Written by David Song, Strategist

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