VOT Research Desk
Closing In On a Monthly Low
Due to unsuccessful attempts to close above the 50-Day SMA, AUD/USD breaks the pattern of higher highs and lows from last week. As a result, the exchange rate may continue to decrease over the next several days (0.6892).
The update to Australia’s Employment report may support the exchange rate prior to the FOMC meeting as the economy is anticipated to add 35.0K jobs in August. As a result, AUD/USD may track the negative slope in the moving average as CME Fed Watch Tool now reflects a 100% probability for a 75bp rate hike on September 21.
Technical Examination:
An improvement in the labor market may lead to a bullish reaction in the AUD/USD pair because it expands the Reserve Bank of Australia’s (RBA) ability to enact a restrictive policy. However, if job growth unexpectedly contracts again, the central bank may be forced to change its strategy in order to maintain the “economy on an even keel.”
The RBA “expects to increase interest rates further over the months ahead,” which will in turn affect developments coming out of Australia and could affect the AUD/USD over the next few days. However, a further decline in the exchange rate could fuel the shift in consumer sentiment similar to what was observed sooner on in the year.
As it trades back below the 50-Day SMA (0.6892), the AUD/USD appears to have reversed before the 0.6940 (78.6% expansion) level, and a closing below the 0.6760 (50% retracement) to 0.6770 (100% expansion) zone increases the possibility of a test of the monthly bottom (0.6699).
The next level of interest lies between 0.6460 (61.8% retracement) and 0.6520 (38.2% expansion), with failure to defend the annual low (0.6681) potentially pushing AUD/USD towards the June 2020 bottom (0.6648).
A rise over the 0.6760 (50% retracement) to 0.6770 (100% expansion) zone would put the 0.6940 (78.6% expansion) area back on the radar, but a failure to test the monthly low (0.6699) would keep the AUD/USD pair inside a defined range.
