Australian Dollar Forecast: AUD/JPY, AUD/USD Breakout Ahead of September RBA Meeting
Australian Dollar Awaits RBA Meeting, Q2’20 GDP
In what seemed like a quiet month, the Australian Dollar grinded higher in the second half of August to post +3.31% and +3.37% gains in AUD/USD and AUD/JPY rates, respectively. Buoyed by the same forces that have lifted global equity markets – hope that the coronavirus pandemic is subsiding, coupled with ongoing stimulus efforts from governments and major central banks – the Australian Dollar has become a favored vehicle for speculation in the FX world.
As the September Reserve Bank of Australia meeting and Q2’20 Australia GDP reports come into focus, however, this ‘slow but steady’ pace in the AUD-crosses may give way to more volatility as market participants shake off their summer doldrums. First up: the September RBA meeting on Tuesday, the first day of the month.
RBA Enacting Yield Curve Control, Rates to Stay on Hold
The Reserve Bank of Australia’s September policy meeting isn’t expect to rock the boat on the interest rate front, which isn’t a surprise: the RBA has already dropped its main overnight interest to an all-time low of 0.25%, implemented its own quantitative easing (QE) program, and is issuing forward guidance to keep the three-year bond yield at 0.25% for the next three years (from March 2020).
AUD/USD RATE TECHNICAL ANALYSIS: DAILY CHART (August2019 to August 2020)
AUD/USD rates may have lost their uptrend from the March coronavirus pandemic low, but the nascent head and shoulders pattern has been busted. To this end, AUD/USD rates continue to gain traction through the descending trendline from the October 2013 and January 2018 highs, with bullish momentum firming up: rates are above the daily 5-, 8-, 13-, and 21-EMA; daily MACD is trending higher in bullish territory; and Slow Stochastics have reached overbought territory. Having cleared out the 0.7100/50 area, the near-term structure has improved materially – even if the September RBA meeting proves to be a burden.
AUD/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (MARCH 2016 to AUGUST 2020)
AUD/JPY rates have broken out of the ascending triangle in place since the beginning of June, and have punched through the dynamic support and resistance band in the 76.30 to 77.55 area (which has proven challenging to markets since January 2019). Even though the uptrend from the coronavirus pandemic low now broken, momentum has strengthened in AUD/JPY rates (similar to AUD/USD rates). Breaking above the descending trendline from the November 2014 and January 2018 highs is a good omen for further bullish price action moving forward.
Reference by: Christopher Vecchio, CFA, Senior Strategist