AUD/USD – Bulls Unable To Hold Onto Post RBA Rally

RBA held rate at 0.25% in this latest round of decision making, meeting broad expectations of analysts. However, the bullish reaction that followed is indeed surprising, as market did not really expect RBA to slash rates to begin with, pricing in a mere 15% probability that a rate cut will happen. So in this case, broad market sentiment agrees with analysts, with only a minority of the market getting it wrong and hence needing to cover their short positions. Bare in mind that as the rate decision met expectations, it is unlikely that traders and speculators will buy on this outcome. If this assertion is correct, then the post announcement rally would simply be the result of short covering, not a good basis for a long-term  AUD/USD rally.

Hourly Chart

This hypothesis is important as price is currently trading just under the newly formed rising Channel. Generally when price hits Channel Top, there can be 3 possibilities – breakout higher, rebound lower, or trading around the same region/straddling trendline slowly higher. With the filter mentioned earlier, the likelihood of price rebounding lower becomes that much higher, and we could see a potential move back towards 0.90 and/or Channel Bottom – whichever comes first.

From a pure technical point of view, a case for bearish pullback is not established fully – Stochastic readings are still pointing higher despite peeking into the Overbought region. Hence, we may need to see some further bearish movement, potentially in the form of 0.902 broken for a stronger bearish signal to be formed. However, that only leaves us with around 20 pips away from the significant support of 0.90, which may not seem very attractive for the risks involved. Hence, traders seeking higher risk/reward ratios may wish to wait for a breakout scenario of 0.90/Channel Bottom confluence instead which may open up 0.89 as ultimate bearish target with 0.892 and 0.896 as interim supports.

Daily Chart

Daily Chart shows prices facing significant resistance from Kumo. If prices are unable to clear the Kumo, the likelihood of a false break-in of Channel increase. However, if we are able to continue trade marginally higher until Kumo is breached, the chances to push back towards 0.93+ Channel Top increases. Stochastic readings support a bullish scenario, but that is a counter-trend signal, and as such we need to be more prudent before assuming that the signal is valid.

Fundamentally, RBA is appearing to distance itself from further rate cuts in the immediate future, with Governor Stevens saying that RBA expects monetary conditions to ease further with previous rate cuts continuing to work through the economy. Funnily, that sort of stance did not stop RBA from cutting rate twice in 2013, hence we should not assume that RBA’s rate cutting action is all over yet. In any case, AUD/USD may still remain bearish even without further rate cut action. USD continues to look strong in the long term thanks to the end of QE in 2014, while Australia’s own economic fundamentals continue to deteriorate. Hence even if short-term pressure may be higher for now, do not simply expect price to be able to climb back to its former glories of above parity without any significant changes to the aforementioned fundamentals.

More Links:
USD/SGD Technicals – Steadily Lower Towards 1.27
GBP/USD – Settles Around 1.5550
EUR/USD – Settles Just Below Key Level of 1.32

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