AUD/USD drops below 50% Fib retracement, awaits key events

Overnight, AUD/USD pierced the 0.6950 mark in a 50% Fibo retracement of the mid-June highs and lows. Risk appetite remains contained while AUD weakness persisted following the RBA’s Lowe speech. 

The RBA Governor, Philip Lowe, spoke in Sydney yesterday on Inflation Targeting and Economic Welfare. Lowe’s comment that it is “reasonable to expect an extended period of low-interest rates” seems to have hammered the message of a lower for longer interest rate environment, pressuring the Aussie to the downside. AU 3-year yields fell from 0.83% to a fresh low of 0.80% while AU 10-year yields fell from around 1.24% to 1.20% (a fresh low). 

Looking ahead, next week’s Q2 CPI release will be an important input into the RBA deliberations at the August meeting, as will US / China trade talks which will collide with the Federal reserve’s decision, making for a highly interesting week for the pair. US data today will also be important as market participants likely want to adjust USD positioning before the events next week.  

AUD/USD levels

Valeria Bednarik, the Chief analyst at FXStret explained that the AUD/USD pair has fallen for a fifth consecutive day and seems poised to extend its decline, despite short-term oversold:

"In the 4 hours chart, the pair has accelerated below the 200 SMA after struggling with the indicator at the beginning of the day, while a bearish 20 SMA has crossed below the 100 SMA above the larger one. Technical indicators have held within oversold territory, reaching fresh lows after a failed attempt to correct higher, giving no signs of downward exhaustion. The pair could consolidate before resuming its decline but seems unlikely now it could recover beyond the 0.7000 figure unless US GDP comes much worse than anticipated."