AUD/USD continues to show signs of a bottoming, but RBA on high alert

  • AUD/USD bid for now, but for how long?
  • The RBA is likely to be under pressure to ease monetary conditions further.

AUD/USD has made a bottom on a technical basis but it has been fulled by the notion that Chinese authorities can somehow pull their economy out of a bottomless hole by pushing on a rope and that US/Sino trade talks will miraculously save the day next month.

Indeed, the markets are buying the optimism, for now,  and it stands to reason that the AUD is the best performing G10 currency on a 7-day view followed by the New Zealand Dollar and GBP.

"However,  the drop in the value of the AUD this year is likely to be insufficient to put much of a dent in the debate about the need for further policy stimulus in Australia in the months ahead",

analysts at Rabobank argued. 

RBA to ease further - (AUD bearish to 0.65c)

"Currently the Bank is mandated to target CPI inflation between 2% and 3%. The implication is that the RBA is likely to be under pressure to ease monetary conditions further. Given that the rates may soon be approaching a floor, the debate about whether QE could be used in Australia is likely to remain alive despite Lowe’s conclusion that “we risk just pushing up assets prices”. We expect AUD/USD to edge towards the 0.65 area on a 12-month view," the analysts explained. 

AUD/USD levels

Analysts at Commerzbank explained that AUD/USD’s daily chart close above the August 8 high at 0.6821 and that this confirms a bottoming formation:

"Slips should find support above the 0.6736 August 14 low. Major support comes in between the August and current September lows at 0.6691/78. Now unexpected failure at 0.6678 on a daily chart closing basis will suggest ongoing weakness to the 0.6548 February 1999 high."

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