The Australian Dollar (AUD) weakened against the US Dollar (USD) after the Reserve Bank of Australia (RBA) left interest rates unchanged at 4.35%, as anticipated. However, the RBA adopted a more dovish tone, removing its previous hawkish bias and suggesting inflation may ease faster than expected. This has fuelled bets on potential rate cuts later in 2024, dampening the AUD’s appeal.
Adding pressure is the prospect of a hawkish US Federal Reserve later this week. Sticky inflation in the US has led investors to adjust expectations for the pace of Fed rate cuts, potentially strengthening the USD.
Technical
The 4-hour chart paints a bearish technical picture for AUDUSD. The currency pair is currently trading at 0.65102, well below the key moving averages [20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line)], indicating a downtrend. The downward-sloping 20-SMA recently breached below the 50-SMA, further highlighting the bearish momentum.
With the RSI at oversold territory (24.00), a short-term corrective bounce is a possibility. However, the initial support level at the 78.60% Fibonacci retracement level (0.64910) could be easily challenged by the bears in the coming sessions. A sustained break below this level, coupled with significant volume, could pave the way for a test of the four-month low at 0.64427.
On the contrary, the oversold RSI could also suggest a potential upside correction. The 61.80% Fibonacci retracement level (0.65287), also known as the golden ratio, could act as a significant hurdle for bulls. A decisive break above this level, accompanied by rising volume, could signal a potential reversal towards the 50.00% Fibonacci retracement level (0.65552) and the 38.20% Fibonacci retracement level (0.65817).
Summary
The AUDUSD faces a precarious situation. The dovish RBA stance and a stronger USD paint a bearish picture in the near term. The oversold RSI hints at a possible corrective bounce, but the key support level (0.64910) appears vulnerable. A sustained break below this level could exacerbate the downtrend. Conversely, a surge above the 61.80% Fibonacci retracement level (0.65817) could signal a potential bullish reversal.
Sources: TradingView, Trading Economics, Reserve Bank of Australia, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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