AUD/USD: Challenging key 200-day moving average post RBA

• RBA left its policy cash rate unchanged at 4.35% in line with expectations.
• A slight dovish tonality in the monetary policy statement has reduced the expectations of a “hawkish pause”.
• Technical analysis suggests that the medium-term uptrend phase of the AUD/USD from its 26 October 2023 low remains intact.
• Watch the 0.6570 pivotal support.

This is a follow-up analysis of our prior report, “AUD/USD: Bullish breakout ahead of monthly AU CPI data” published on 28 November 2023. Click here for a recap.

Australia’s central bank, RBA has left its policy cash rate unchanged today at 4.35% which came in line with expectations after a prior 25 basis points (bps) hike last month.

Before today’s monetary policy meeting, newly appointed RBA Governor Bullock peppered her public speeches with hawkish rhetoric that expressed concerns about sticky elevated domestic inflation pressures that required higher interest rates to negate them.

Hence, in the run-up to today’s RBA meeting, several market participants expected a “hawkish pause” with similar hawkish rhetoric text to be expressed in the accompanying policy statement.

AUD/USD plummeted due to “cognitive dissonance”

But in contrast, the actual tonality of the statement has leaned towards a dovish tilt with a focus on data dependence; it stated that whether further tightening is warranted will depend on the data as well as the evolving assessment of risk, added that the outlook on household consumption remains uncertain.

Also, the statement acknowledged that inflation has moderated as seen in the softer-than-expected monthly CPI for October (4.9% from 5.6% September, and below 5.2% consensus) was driven by the goods sector but the October inflation update did not provide much information on the services sector.

The cognitive dissonance between the tonality of the latest RBA monetary statement and the recent hawkish speeches from RBA Governor Bullock continued to put downside pressure on the AUD/USD today (5 December) where it has shed -117 pips from yesterday’s intraday high of 0.6690 to print a current intraday low of 0.6571 at this time of the writing.

Retesting the key 200-day moving average with oversold condition

Fig 1:  AUD/USD medium-term trend as of 5 Dec 2023 (Source: TradingView, click to enlarge chart)

Fig 2:  AUD/USD minor short-term trend as of 5 Dec 2023 (Source: TradingView, click to enlarge chart)

The current weakness seen in the AUD/USD has led it to challenge a key pivotal support at 0.6570 that also confluences with the key 200-day moving average where price actions have traded above it since 27 November 2023.

Several positive elements suggest the AUD/USD may stage a potential bullish reversal at this juncture.

Firstly, the 2-year spread between Australian sovereign bonds and US Treasury notes has continued to inch upwards since its bullish breakout from a key resistance on 26 October 2023, suggesting a further potential narrowing of the 2-year yield negative spread.

Secondly, the daily RSI momentum indicator has not reached an overbought condition and it remains above a parallel ascending support at the 55 level.

Thirdly, the short-term hourly RSI momentum indicator has dipped down to an oversold level of 24.40, its lowest since 7 November 2023 which suggests an overstretched minor decline from yesterday’s intraday high of 0.6690.

Watch the 0.6570 pivotal support and clearance above 0.6635 near-term resistance may reinstate the bullish tone to see the next intermediate resistance coming at 0.6700 (also the upper boundary of the medium-term ascending channel in place since the 26 October 2023 low) in the first step.

However, a break below 0.6570 invalidates the recovery scenario to expose the next intermediate supports at 0.6500 (20-day moving average) and 0.6450 (lower boundary of the medium-term ascending channel & 50-day moving average).

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