AUD/USD extends the rebound from the February reduced (0.7692) as the Reserve Bank of Australia (RBA) keeps the official cash rate (OCR) at the record low of 0.10 percent, but recent improvements in the Relative Strength Indicator (RSI) point to a further correction in the exchange rate as the oscillator falls back from overbought territory and snaps the up trend established in February.
AUD/USD transactions to a new weekly (0.7814) since the RBA insists that"there are better prospects for a continuing recovery than there were only a few months ago," and the exchange rate may continue to retrace the decrease from the February large (0.8007) because the central bank retains the present route for fiscal policy.
It appears as though that the RBA is in wait-and-see manner as"GDP is expected to come back to its end-2019 level at the center of the season," and the central bank may continue to rely on its own current tools to accomplish its policy goals as Governor Philip Lowe and Co. reiterate that"a further $100 billion will be purchased" after the first government bond purchase program is completed in April. In turn, that the RBA appears to be on a preset class as"that the Board remains committed to keeping highly supportive monetary conditions until its goals are attained," and crucial market themes may keep AUD/USD afloat because the Federal Reserve's balance sheet climbs to a fresh record high in February.
However, the increase in longer-dated US Treasury yields can sway the RBA as"this increase partly reflects a lift in anticipated inflation over the medium term to rates that are closer to central banks' targets," together with Governor Lowe and Co. acknowledging that"changes in bond yields internationally have been related to volatility in another asset prices, such as foreign exchange prices."
It remains to be seen if the RBA will change the forward advice in 2021 since the board pledges to"not raise the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range," but the current weakness in AUD/USD has spurred a change in retail sentiment as the foreign exchange rate checks the 50-Day SMA (0.7718) for the next time in 2021.
The IG Client Sentiment report reveals 56.92% of dealers are currently net-long AUD/USD, with the proportion of traders long to short standing at 1.32 to 1. The amount of dealers net-long is 5.05% higher compared to yesterday and 54.98% higher from a week, while the number of traders net-short is 1.09% higher than yesterday and 38.54% reduced from last week.
The development in net-long position comes as AUD/USD extends the rebound from their 50-Day SMA (0.7718), although the decrease in net-short curiosity has fueled a change in retail opinion since 40.70% of dealers were net-long the set during the previous week. Nevertheless, the decrease from the February high (0.8007) might end up being an exhaustion of this broader trend rather than a change in behaviour as major central banks rely upon their balance sheets to achieve their coverage goals, and AUD/USD can continue to reflect the bullish price action found in 2020 as crucial market themes remain in place.
With that said, the technical outlook for AUD/USD remains constructive as the break above January's high (0.7820) negates the scope to get a double-top formation, but recent developments in the Relative Strength Indicator (RSI) point to a further correction in the market rate as the oscillator drops straight back from overbought territory and snaps the up trend based in February.
AUD/USD RATE DAILY CHART
Keep in mindthe AUD/USD correction in the September large (0.7414) proved to be an exhaustion from the bullish trend rather than a change in behaviour as the exchange rate traded into fresh annual highs during December.
At the same time, developments in the Relative Strength Indicator (RSI)showed the bullish momentum gathering speed as the index pushed into overbought territory for first time since September, using the break above 70 accompanied by a further appreciation in AUD/USD like the behavior found in the first half of 2020.
But a textbook RSI market sign emerged after the failed effort to test the March 2018 large (0.7916), together with AUD/USD trading to new 2021 lows in February as it neglected to conserve the January range.
But the pullback from the January high (0.7820) turned out to be a short lived, with AUD/USD trading into new yearly drops to negate the scope to get a double-top formation.
Consequently, the decrease in the February large (0.8007) may also be an additional exhaustion in the broader trend as AUD/USD continues to respond to the50-Day SMA (0.7718), however recent advancements at the RSI stage to some further correction in AUD/USD since the oscillator falls back from overburdened land and snaps the upward trend established in February.
Nevertheless, the move back over the Fibonacci overlap around 0.7720 (38.2% growth ) into 0.7760 (23.6% expansion) brings the 0.7880 (38.2% growth ) region back to the radar, together with the next area of interest coming in around 0.7930 (50 percent retracement) to 0.7950 (50% expansion).
