Australian Dollar Forecast: AUD/USD Rally at Threat of RSI Divergence

Australia Dollar Outlook: AUD/USD

AUD/USD extends the series of higher highs and lows from last week to register a fresh yearly high (0.6942), but the Relative Strength Index (RSI) appears to be deviating with price amid the failed attempts to push into overbought territory.

Australian Dollar Forecast: AUD/USD Rally at Threat of RSI Divergence

The push above the June 2023 high (0.6900) may lead AUD/USD to further retrace the decline from the 2023 high (0.7158) as the Federal Reserve starts to unwind its restrictive policy, while the Reserve Bank of Australia (RBA) seems to be in no rush to switch gears as ‘sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority.’

In turn, the update to Australia’s Retail Sales report may keep the RBA on the sidelines as household spending is expected to increase 0.4% in August after holding flat last month, and a marked rebound in household spending may keep AUD/US afloat as it raises the central bank’s scope to further combat inflation.

However, a weaker-than-expected Retail Sales report may drag on the Australian Dollar as it puts pressure on the RBA to support the economy, and Governor Michele Bullock and Co. may start to adjust the forward guidance for monetary policy as ‘the Board will continue to rely upon the data and the evolving assessment of risks to guide its decisions.’

With that said, the Relative Strength Index (RSI) may continue to hold below 70 if AUD/USD struggles to extend the recent series of higher highs and lows, but the recent rally in the exchange rate may persist should the oscillator push into overbought territory for the first time this year.

AUD/USD Price Chart – Daily

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

AUD/USD may continue to register fresh yearly highs as it rises for the third consecutive day, with a close above the 0.6920 (50% Fibonacci retracement) to 0.6930 (23.6% Fibonacci retracement) region opening up the 0.7090 (50% Fibonacci retracement) to 0.7140 (23.6% Fibonacci extension) area.
Next region of interest comes in around the 2023 high (0.7158) but the bullish price series in AUD/USD may unravel if it struggles to hold above 0.6870 (38.2% Fibonacci retracement).
A break/close below the 0.6810 (23.6% Fibonacci extension) to 0.6820 (23.6% Fibonacci retracement) area brings 0.6740 (38.2% Fibonacci retracement) on the radar, with the next region of interest coming in around the monthly low (0.6622).

--- Written by David Song, Senior Strategist

Follow on X at @DavidJSong

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.