AUD/USD Carves Bullish Outside-Day As RBA Strikes Hawkish Tone

DailyFX Table

The Australian dollar outperforms its major counterparts, with AUD/USD at risk for a larger rebound as the Reserve Bank of Australia (RBA) gradually alters the outlook for monetary policy.

A bullish engulfing appears to be taking shape in the aussie-dollar exchange rate as Governor Philip Lowewarns ‘that ‘it is more likely that the next move in interest rates will be up, rather than down,’ but it seems as though the central bank will carry the record-low cash rate into 2018 as officials are ‘prepared to be patient.’ With that said, the RBA may continue to tame expectations for an imminent rate-hike as ‘the subdued outlook for inflation mean that there is not a strong case for a near-term adjustment in monetary policy.’

In turn, the RBA’s wait-and-see approach may keep the broader outlook for AUD/USD tilted to the downside, but the near-term weakness in the exchange rate appears to be abating especially as the Relative Strength Index (RSI) continues to hold above oversold territory.

AUD/USD Daily Chart

AUD/USD Daily Chart

Failure to break below the 0.7460 (23.6% retracement) to 0.7530 (38.2% expansion) region may spur a larger rebound in AUD/USD as it carves a bullish outside-day (engulfing), with a break/close above 0.7590 (100% expansion) raising the risk for a move back towards 0.7650 (38.2% retracement).

May see AUD/USD continue to broadly track the downward trending channel carried over from September as the Relative Strength Index (RSI) highlights a similar behavior, but a divergence appears to be taking shape as the oscillator turns around ahead of oversold territory; may see aussie-dollar stage a more meaningful correction if the RSI snaps the bearish formation.

Next topside hurdle comes in around the former-support zone around 0.7720 (23.6% retracement) to 0.7770 (61.8% expansion), which lines up with the November-high (0.7730).