Daily analysis

AUD/USD Outlook Mired by Deviating Paths Between RBA & FOMC

AUD/USD trades to a fresh monthly low (0.7274) as US Retail Sales unexpectedly increases 0.7% in August, and the exchange rate may face a further decline ahead of the Federal Open Market Committee (FOMC) interest rate decision on September 22 as the central bank appears to be on track to scale back monetary support.

The FOMC may layout a tentative exit strategy as the rise in household consumption indicates a robust recovery, and the update to the Summary of Economic Projections (SEP) may heighten the appeal of the US Dollar if Fed officials show a greater willingness to normalize monetary policy sooner rather than later.

Meanwhile, the Reserve Bank of Australia (RBA) seems to be on a preset course as the central bank plans to carry out its government bond purchase program at a pace of A$4B a week “until at least mid February 2022,” and Governor Philip Lowe and Co. may keep the door open to further support the economy as job growth contracts for the second time this year.

In turn, the diverging paths for monetary policy may keep AUD/USD under pressure as Fed officials project two rate hikes for 2023, but a further decline in the exchange rate may fuel the recent flip in retail sentiment like the behavior seen earlier this year.

Keep in mind, AUD/USD sits below the 200-Day SMA (0.7603) for the first time in over a year, with the decline from the May high (0.7891) pushing the Relative Strength Index (RSI) into oversold territory for the first time since March 2020.
As a result, the 50-Day SMA (0.7347) established a negative slope as AUD/USD traded to fresh yearly lows in the second-half of 2021, and the rebound from the August low (0.7106) may turn out to be a correction in the broader trend it trades back below the moving average.
Lack of momentum to test the 0.7500 (50% retracement) handle pushed the exchange rate back below the 0.7370 (38.2% expansion) to 0.7380 (61.8% retracement) region, but need a close below the 0.7290 (23.6% expansion) region to bring the Fibonacci overlap around 0.7180 (61.8% retracement) to 0.7210 (78.6% retracement) on the radar.
Next area of interest comes in around 0.7130 (61.8% retracement) to 0.7140 (23.6% expansion), with a move below the August low (0.7106) opening up the 0.7060 (61.8% expansion) to 0.7090 (7.8% expansion) region.

Reference by: David Song, Currency Strategist