Bottom Drops Out of AUD/USD as RBA Lowe Shifts to Neutral
Matt Weller, CFA, CMT February 6, 2019 3:33 PM
Mirroring last week’s shift at the Federal Reserve, the RBA has now shifted its future interest rate expectations into neutral.
Governor Lowe has long maintained that the next change to interest rates would be an increase, but he changed his tune in a speech during today’s Asian session, just a day after the RBA released its full monetary policy statement. In an unusually straightforward comment (for a central banker at least!), Dr. Lowe stated, “Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios. Today, the probabilities appear to be more evenly balanced.” Later, he noted that lower interest rates would lead to a decline in the Aussie in a transparent attempt to jawbone the currency lower.
In other words, the central bank has finally acknowledged the numerous signs of slowing growth in the region, and traders have certainly taken notice. AUD/USD collapsed over 100 pips in the immediate aftermath of the speech, with the selling pressure taking the pair to a nearly 2-week low by the European open. More to the point, futures traders are now pricing in a 50% chance of an interest rate cut this year; in any event, the prospect of an RBA rate hike at any point before Q4 is now vanishingly small, and even the most optimistic of analysts are pushing back their rate increase calls into 2020.
Technical View: AUD/USD
Despite the sharp drop following Governor Lowe’s about-face, the Aussie hasn’t yet made a “lower low” on the daily chart. Make no mistake: This represents a dramatic (if overdue) shift from the RBA, and we wouldn’t be surprised to see the Aussie’s weakness continue from here.
Looking at the secondary indicators, AUD/USD’s RSI has broken its previous trend line and remains in bearish territory after failing to reach the “70” level at any point in the last year. Meanwhile, the MACD is rolling over to cross back below its signal line and may soon cross below the “0” level, showing a shift back to bearish momentum in the pair.
If these bearish inclinations are correct, sellers may look to drive the pair down toward the late January low at 0.7175 next, with potential for a move down toward the psychologically-significant 0.7000 level next. Near-term bulls would have to see the pair break back above last week’s high near 0.7300 before growing more optimistic on the pair’s prospects moving forward.
Source: TradingView, FOREX.com
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.