Assessing the AUD/USD Outlook Ahead of the RBA Decision

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The Reserve Bank of Australia (RBA) is set to make its monetary policy statement at the start of the 4/7 Tuesday session. The Aussie has been bearish, with the market pricing in more rate cuts ahead, though many expect today’s RBA decision to hold the official cash rate (OCR) at 2.25%. Let’s take a look at some Aussie-pairs and be prepared for the reaction.

AUD/USD 4H Chart 4/6
audusd 4h chart 4/6
(click to enlarge)

The AUD/USD 4H chart shows a market that has been in a bearish continuation mode. It made new lows on the year in last week, pushing to 0.7532 before rebounding. The correction is so far still within the context of a bearish market in the 4H chart, as long as price is still under the cluster of 200-, 100-, and 50-period SMAs and the 4H RSI is holding under 60.

A break above 0.7740 would clear the moving averages and would likely bring the RSI above 60, and even above 70. If we see this type of price action after the RBA decision, the bank is probably becoming less dovish. AUD/USD is bullish in the short-term above 0.7740, given that AUD/USD holds above the 0.7650 level on a subsequent pullback. This short-term bullish outlook would have the highs around 0.79 in sight. For now, we should respect this resistance because of the prevailing downtrend.

Now, if price holds under 0.7740 and closes the 4/7 session under 0.77, the AUD/USD would still have a bearish outlook. It might consolidate some more in the short-term, but pressure should return towards the 0.7532 low.

Now, if price clears below 0.76 after the RBA decision, the bearish outlook would be more apparent and the 0.7532 low would will likely break this week. We have to look at the monthly chart for the next key support.

AUD/USD Monthly Chart 
audusd monthly chart

(click to enlarge)

On the monthly chart, we can see that there is still some room under 0.7532 before AUD/USD hits a rising trendline coming up from the 2011 low around 0.4815. Also, there is a previous resistance pivot around 0.7265. We can probably saw there the area between 0.70-0.72 is going to provide key support for AUD/USD even against the current dovish RBA environment especially with the monthly RSI below 30. Now, this consolidation might  be a short to medium-term one, and the trend might still be bearish, but we should see some support in the 0.70-0.72 area nonetheless.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.