AUD/USD Declines On RBA Jawboning

AUD/USD is shown signs of reversing as today’s decline has led to technical developments on an hourly chart as well as on larger time frames.

The drop in the exchange rate today followed comments from RBA deputy governor Guy Debelle that the markets were reading too much into the Reserve Bank of Australia’s discussion about the neutral rate.

Speculators consider the discussion of the neutral rate at the Bank’s most recent meeting as a signal that a rate hike is being considered. Especially as it was concluded that the neutral rate is at around 3.5%, 2 points above the current interest rate.

The RBA meeting minutes were released on Monday and triggered a technical break in AUD/USD to fresh highs for the year. The currency pair remains at highs not seen in over two years.

RBA Debelle’s comments triggered a drop from around 0.7926 to the 0.7880 area but losses were not sustained. A slow recovery following the sharp drop had erased losses as a result of the comments as of the North American open. The pair has since edged lower again but remains well above the low of the day.

Nevertheless, the decline on the back of Debelle’s comments has broken the pair lower from a rising trendline that originates back to a low posted on July 11, best seen on an hourly chart. The recovery into the North American session was a retest of the broken trendline which has been protected by sellers.

On a daily chart, AUD/USD closed Thursday out with a doji print. A close near current levels at the end of the day would result in a bearish evening star reversal pattern.

Reversal candlestick patterns are seen on a daily chart for most of the Aussie cross rates. Several of the cross rates are also setting up reversal patterns on a weekly chart following the Aussie weakness seen over the past two sessions.

On an hourly chart, a decline trend channel has contained prices action from the high posted shortly after the Aussie jobs report this week. A break above it could suggest a bullish continuation although a stronger confirmation of a continuation would come on a break of 0.7960 resistance which held the pair lower this week.

The first level of downside support falls at the prior 2017 high of 0.7835 posted in April.

AUD/USD 1-Hour Chart

AUDUSD 1H July 21

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.