AUD : Outlook

(Wed, 9 Dec 2020). AUD/USD consolidates after trading to a fresh yearly high (0.7454) earlier this week, and looming developments in the Relative Strength Index (RSI) may show the bullish momentum gathering pace as the indicator flirts with overbought territory for the first time since September.

AUD/USD RATE OUTLOOK HINGES ON LOOMING RSI SIGNAL

AUD/USD trades to fresh 2020 highs in December as the US Dollar broadly reflects an inverse relationship with investor confidence, with the correction from the September high (0.7414) providing to be an exhaustion in the bullish trend rather than a change in behavior as the Reserve Bank of Australia (RBA) moves to the sidelines ahead of 2021.

Recent remarks by RBA Governor Philip Lowe suggest the board will endorse a wait-and-see approach over the coming months as “the economic news has, on balance, been better than we were expecting,” with the central bank head going onto say that “the focus is now on actual outcomes for inflation and unemployment, rather than forecast outcomes” while testifying in front of the House of Representatives Standing Committee on Economics.

Lowe insist that the RBA remains “prepared to do more, if that is required” even though the central bank plans to purchase $100 billion of Australian government bonds over the next 6 months, but it seems as though the board is in no rush to deploy more unconventional tools as “we are still of the view that a negative policy interest rate in Australia is extraordinarily unlikely, with any benefits being outweighed by the costs.”

In turn, key market trends may continue to influence AUD/USD ahead of the next RBA meeting on February 1 as Governor Lowe and Co. acknowledge that “the improvement in risk sentiment has also been associated with a depreciation of the US dollar and an appreciation of the Australian dollar,” and tilt in retail sentiment also looks poised to persist as the crowding behavior from earlier this year reappears.

With that said, key market trends may continue to influence AUD/USD as the US Dollar broadly reflects an inverse relationship with investor confidence, and looming developments in the Relative Strength Index (RSI) may show the bullish momentum gathering pace as the indicator flirts with overbought territory for the first time since September.

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