The Reserve Bank of Australia (RBA) will announce its latest monetary policy decision later today at 0430 GMT. Policy makers have cut its key benchmark cash rate to 1.75% to a record low on the May meeting due to a weak Q1 core inflation data as inflation has eased to 1.3% y/y versus 1.7% seen in Q4 2015 (click here for our last update on RBA Interest Rate Decision Day report).
Markets have only priced in the odds of a July cash rate cut of around 12% based on swaps data as reported by Bloomberg which has been reduced from a probability of 40% seen in the wake of the Brexit vote on 24 June 2016. All the economists surveyed by Bloomberg expect no change in the cash rate later as RBA will adopt a wait and see approach on the external risks that arise from Brexit.
Let us take a look at the potential short-term movement on the AUD/USD from a technical analysis perspective.
AUD/USD
(Click to enlarge charts)
Key elements
- On the short-term since the low of 0.7141 printed on 24 May 2016, the AUD/USD has been trading in a ascending range configuration within a long-term bearish configuration below the 0.7902 long-term pivotal resistance.
- The upper boundary of the short-term ascending range stands at 0.7710 with is just below the a Fibonacci cluster of 0.7595/7650
- The AUD/USD is now being supported by a short-term ascending trendline (depicted in dotted green) in place since 28 June 2016 (post Brexit) now at 0.7465 (see 4 hour chart).
- In conjunction, the 4 hour RSI oscillator still shows upside potential before reaching an extreme overbought level which suggests that short-term upside momentum of price action remains intact.
- The lower boundary of the short-term ascending range rests at 0.7410
Key levels (1 to 3 days)
Pivot (key support): 0.7465
Resistances: 0.7595/7650 & 0.7710
Next supports: 0.7410 & 0.7260/25
Conclusion
Short-term technical elements are still positive but do note that on the longer-term the AUD/USD is still evolving within a bearish configuration. For now as long as the 0.7465 short-term pivotal support holds, the AUD/USD may see a potential final push up to target the 0.7595/7650 resistance and even 0.7710 (upper boundary of the ascending range) before another downleg materialises
On the other hand, a break below the 0.7465 short-term pivotal support, the AUD/USD is likely to see a decline towards the supports of 0.7410 follow by 0.7260/25 (ascending trendline in place since 20 January 2016).
Charts are from eSignal
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