AUD/USD Breaches March Low to Bring November Low on Radar

AUD/USD Outlook

AUD/USD registers a fresh yearly low (0.6499) after failing to trade back above the 50-Day SMA (0.6679), and the exchange rate may give back the rebound from the November 2022 low (0.6272) as it snaps the range bound price action from earlier this week.

AUD/USD Breaches March Low to Bring November Low on Radar

AUD/USD takes out the March low (0.6565) as it carves a series of lower highs and lows, and data prints coming out of Australia may do little to curb the decline in the exchange rate should the Retail Sales report reflect a slowing economy.

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Retail spending in Australia is expected to increase a mere 0.2% in April after expanding 0.4% the month prior, and a slowdown in household consumption may push the Reserve Bank of Australia (RBA) to the sidelines as the central bank warns that there are ‘still significant uncertainties surrounding the economic outlook, particularly for household consumption.’

Nevertheless, a better-than-expected Retail Sales report may curb the recent decline in AUD/USD as it puts pressure on the RBA to pursue a more restrictive policy, and it remains to be seen if Governor Philip Lowe and Co. will deliver another 25bp rate hike at the next meeting on June 6 as the board acknowledges that ‘further increases in interest rates may still be required.’

Until then, developments coming out of the US may also sway AUD/USD as the Federal Reserve keeps the door open to further embark on its hiking-cycle, and it seems as though the Federal Open Market Committee (FOMC) will take additional steps to combat inflation as Governor Christopher Waller warns that ‘I do not support stopping rate hikes unless we get clear evidence that inflation is moving down towards our 2 percent objective.’

Waller went onto say that ‘fighting inflation continues to be my priority’ while speaking at the 2023 Santa Barbara County Economic Summit, and the comments suggest Fed officials will continue to tame speculation for a rate cut this year especially as the labor market remains tight.

Source: CME

In turn, AUD/USD may face headwinds over the remainder of the month as the CME FedWatch Tool now reflects a greater than 40% chance for another 25bp Fed rate hike, and the exchange rate may continue to trade to fresh yearly lows as it carves a series of lower highs and lows following the failed attempts to trade back above the 50-Day SMA (0.6680).

With that said, AUD/USD may continue to pare the advance from the November 2022 low (0.6272) as it clears the March low (0.6565), and a further decline in the exchange rate may push the Relative Strength Index (RSI) towards oversold territory as it sits at its lowest level since March.

Australian Dollar Price Chart – AUD/USD Daily

Chart Prepared by David Song, Strategist; AUD/USD on TradingView

• AUD/USD clears the March low (0.6565) following the failed attempt to push back above the 50-Day SMA (0.6679), and the exchange rate may continue to trade to fresh yearly lows as it carves a series of lower highs and lows.
• A close below the 0.6510 (38.2% Fibonacci retracement) to 0.6550 (61.8% Fibonacci retracement) region may push AUD/USD towards 0.6380 (78.6% Fibonacci retracement), with the next area of interest coming in around the November 2022 low (0.6272).
• A further decline in AUD/USD may push the Relative Strength Index (RSI) towards oversold territory, but the oscillator may show the bearish momentum abating if it fails to push below 30 like the price action from earlier this year.
• Need a move back above the 0.6510 (38.2% Fibonacci retracement) to 0.6550 (61.8% Fibonacci retracement) region for AUD/USD to negate the bearish price series, with the next topside area of interest coming in around the 0.6600 (23.6% Fibonacci retracement).

Additional Resources

USD/CAD Rate Climbs Above 50-Day SMA to Eye Monthly High

Gold Price Forecast: Bullion Susceptible to Test of April Low

--- Written by David Song, Strategist

Follow me on Twitter at @DavidJSong