AUD/USD Rate Risks Further Losses as Bearish Momentum Remains in Play

FX TALKING POINTS:

– AUD/USD Slips to Fresh 2018-Lows Ahead of Reserve Bank of Australia (RBA) Meeting. Downside Targets Remain on the Radar as Bearish Momentum Remains in Play.

– USD/JPY Extends Higher Highs Following Upbeat 4Q U.S. Gross Domestic Product (GDP) Report. Relative Strength Index (RSI) Starts to Snap Bearish Formations.

AUD/USD SITS AT 2018-LOW AHEAD OF RESERVE BANK OF AUSTRALIA (RBA) MEETING.

AUD/USD presses to fresh 2018-lows going to the end of the month, with the pair at risk for further losses as it initiates a bearish sequence ahead of the Reserve Bank of Australia (RBA) meeting on April 3.

With the RBA widely expected to retain the record-low cash rate, Governor Philip Lowe and Co. may merely attempt to buy more time as ‘household incomes are growing slowly and debt levels are high.’ More of the same from the RBA may continue to sap the appeal of the Australian dollar as market participants scale back bets for a 2018-rate hike, and it seems as though the RBA is in no rush to adjust the monetary policy outlook as ‘the low level of interest rates is continuing to support the Australian economy.’

As a result, downside targets remain on the radar for AUD/USD, with the pair at risk of exhibiting a more bearish behavior as the Relative Strength Index (RSI) continues to track the downward trend from earlier this year.

AUD/USD DAILY CHART

• AUD/USD has come up against the former-resistance zone around 0.7650 (38.2% retracement), with a break/close below the stated region opening up the next downside target around 0.7590 (100% expansion); next downside hurdle comes in around 0.7460 (23.6% retracement) to 0.7530 (38.2% expansion), which lines up with December-low (0.7501).
• Keeping a close eye on the RSI as it falls back towards oversold territory, with a break below 30 raising the risk for a further decline in the exchange rate as the bearish momentum gathers pace.

USD/JPY EXTENDS HIGHER HIGHS FOLLOWING UPBEAT 4Q U.S. GROSS DOMESTIC PRODUCT (GDP) REPORT.

USD/JPY climbs to a fresh weekly-high (107.01) as the updates to the 4Q U.S. Gross Domestic Product (GDP) report showed a larger-than-expected upward revision in the growth rate, and the pair may stage a more meaningful recovery over the coming days as the bearish momentum abates.

Signs of stronger growth should keep the Federal Open Market Committee (FOMC) on course to further normalize monetary policy over the coming months especially as the core U.S. Personal Consumption Expenditure (PCE), the central bank’s preferred gauge for inflation, sits at 1.9%. The monthly PCE report due out tomorrow may foster a similar reaction as the core reading is expected to climb to an annualized 1.6% from 1.5% in February, and another batch of positive developments may ultimately fuel a larger rebound in USD/JPY as inflation approaches the 2% target.

In turn, Chairman Jerome Powell and Co. may continue to prepare U.S. households and businesses for higher borrowing-costs as the committee looks to implement four rate-hikes in 2018, with the topside targets on the radar for USD/JPY as it extends the series of higher highs from earlier this week.

USD/JPY DAILY CHART

• USD/JPY stands at risk for a larger rebound as the Relative Strength Index (RSI) moves away from overbought territory and starts to threaten the bearish formations carried over from the previous year.
• Need a break/close above the 106.70 (38.2% retracement) to 107.20 (61.8% retracement) region to favor a larger advance in USD/JPY, with the next region of interest coming in around 108.30 (61.8% retracement) to 108.40 (100% expansion) followed by the Fibonacci overlap around 109.40 (50% retracement) to 110.00 (78.6% expansion).

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— Written by David Song, Currency Analyst

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