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AUDUSD Outlook: Wilting AUD Staring at Further Losses

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AUDUSD Outlook: Wilting AUD Staring at Further Losses
  • Plummeting iron prices have exacerbated AUD’s losses.
  • The upcoming FOMC meeting could strengthen the US dollar further.
  • Covid-19 is still biting Australia’s economy.

The Australian dollar lost more ground today and hit the lowest level in a month, trading at an exchange rate of 0.7237, down by 0.35% or 0.0025 against the US dollar. The AUDUSD had shown some glimpse of hope on Friday, closing the week with 24-hour gains of 0.18%. However, the pair had started the new week in the red, as market fundamentals point to a strong possibility of a continued poor performance by the AUD against not only the USD, but also other currencies.

Gloomy fundamentals creating bearishness against AUD

On Thursday last week, many Australians complained of losing their jobs as the price of Australia’s main export commodity, iron ore, moved lower. This seemed to bear more influence than rising bond yields on the exchange rate.

Much blame can also be placed on the Covid-19 spike. The pandemic is making traders nervous after reports that Victoria State today saw its biggest daily rise in COVID-19 cases this year with 567 infections. The prevalence has adversely affected Australia’s economic productivity.  

All eyes on RBA and FOMC

All eyes are now focused on the central bank as both the FOMC and the Reserve Bank of Australia (RBA) are scheduled to release potentially impactful news this week. The RBA will release their September monetary policy meeting minutes this Tuesday, but traders do not expect any significant changes to the Australian monetary policy.

Traders are placing their hopes on the FOMC meeting, which is planned to take place on Wednesday, and markets will be focused on the timing of any tapering. RBA is also expected to give further details as to when it may start to slow its $120 billion in monthly bond purchases that have supported the recovery from the pandemic.

The US dollar had a smooth run against the Australian dollar last week and has had a positive takeoff this week, as well as it continues to display a dominant uptrend against most currencies.

The US recorded impressive retail sales in August, as reported last week. This has boosted the USD based on the implied strength of the US economy. This has also raised the prospect of an earlier monetary policy tightening by the Federal Reserve also played a very big role in strengthening the economy. The Aussie was also pressured by a rise in the 10-year US Treasury yield.

According to the CFTC Positioning Report of last week, USD net longs has remained firm. The US Dollar Index (DXY) traded within a consolidative mood during the week under a major observance, as market participants were familiarizing themselves with the latest Payrolls figures, while Fed-speakers insisted on a sooner-than-anticipated QE tapering and US yields corrected lower from tops.

Investors now think that the Australian dollar’s poor performance against the US dollar is likely to continue as all signs indicate the USD is sustaining its dominance as a result of a troubled Australian economy.

Technical analysis

The AUDUSD pair is currently trading at $0.7237. The Aussie looks likely to continue with its losing streak. The RSI has been steadily declining since September 3rd, going from 61 to hit 38 at the time of writing. The bears are clearly in control of the market at the moment.

Under current circumstances, the AUDUSD pair could slide further down to $0.7117 for support. Upward action is likely to be constrained by bearish pressure. However, marginal gains to the first resistance at 0.7320, the 38.1% Fibonacci retracement, and the second resistance at 0.7346 at the 50.0% retracement could be possible.

The AUDUSD daily price chart with corresponding RSI

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