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

Article By: ,  Strategist
September 30, 2024 8:50 PM

 

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

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