Australian dollar talking points
AUD / USD extends the advance following the Kansas City Fed Economic Symposium breaking out of a declining channel from earlier this year and the exchange rate may see a broader recovery in the remainder of the week as it trades above the 50-day Simple Moving Average (SMA) (0.7375) for the first time since June.
AUD / USD exits the descending channel to trade above the 50-day SMA.
AUD / USD extends the recent series of higher highs and lows since the ADP Employment Report warns of a slower-than-expected recovery in the labor market and the US Non-Farm Payroll (NFP) report could also generate a bearish reaction in the dollar if the update encourages the Federal Reserve to maintain the current course of monetary policy.
Signs of a less robust recovery could keep the Federal Open Market Committee (FOMC) on the sidelines as Chairman Jerome Powell insists that “we have a lot of ground to cover to reach maximum occupancy, but a stronger than expected NFP report could undermine the AUD / USD recovery as it puts pressure on the Fed to normalize monetary policy sooner rather than later.
Meanwhile, the Reserve Bank of Australia (RBA) may find it difficult to defend its wait-and-see approach to monetary policy as the 2nd Quarter Gross Domestic Product (GDP) report instills a better outlook for the Australian economy, and it remains to be seen whether Governor Philip Lowe and Co. will adjust future guidance to the next interest rate decision on September 7 as the central bank “would be willing to act in response to further negative news on the health front in should there be a more significant setback to the economic recovery. ‘
Until then, US data impressions are likely to weigh on AUD / USD, as Chairman Powell acknowledges that “If the economy has evolved as broadly as expected, it may be worth starting to slow down. of asset purchases this year. «, but a greater recovery in the exchange rate could drive a reversal in retail sentiment as the behavior observed earlier this year.
IG Client Sentiment Report shows 47.18% of traders currently net long AUD / USD, with the ratio between short and long trader standing at 1.12 to 1.
number of net long traders is 3.94% lower than yesterday and 16.19% lower than last week, while the number of net short traders is 12.35% higher than yesterday and 11.49% compared to last week. decline in the net long position could be a function of profit-taking behavior, as AUD / USD is trading above the 50-day SMA (0.7375) for the first time since June, while the Increase in net short interest fueled the shift in retail sentiment as 50.84% of traders were long in the pair at the beginning of the week.
With that said, recent price action raises the chances of a broader rally in AUD / USD as it extends the range of higher highs and lows earlier this week, but US data impressions could hurt. the exchange rate. the Fed appears to be on track to change gears by the end of the year.
AUD / USD daily rate chart
Source: Commercial view
- Note that the AUD / USD is trading below the 200-day Simple Moving Average (SMA) (0.760) .4) for the first time in more than a year, declining from the May high (0.7891) pushing the Relative Strength Index (RSI) into oversold territory for the first time since March 2020.
- As a result, the 50-day SMA (0.7375) has established a downward slope as the AUD / USD traded at new yearly lows in the second half of 2021, but the exchange rate has broken out of the downtrend channel since early this year. following the failed attempt to close below the region of 0.7130 (61.8% decrease) to 0.7140 (23.6% expansion).
- AUD / USD returns above the 50-day SMA (0.7375) as it extends the series of highs and lows earlier this week, with a breakout above the August high (0.7427) leading the 0, 7440 (23.6% expansion) area on the radar.
- next region of interest comes from 0.7560 (50% expansion) to 0.7570 (78.6% retracement), with a move above the 200-day SMA (0.7586) opening the overlay. Fibonacci around 0.7620 (38.2% retracement) to 0.7640 (38.2%). recoil).
– Written by David Song, Currency Strategist
Follow me on @DavidJSong
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