AUD/USD Bouncing Off Support as RBA Policy Decision Looms Into View

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AUD/USD Price, Chart, and Analysis

• AUD/USD bouncing off multi-month support for now.
• RBA interest rate decision on Tuesday.
• Retail traders are heavily net-long AUD/USD.

The Reserve Bank of Australia is set to leave its key interest rate unchanged at tomorrow’s monetary policy meeting but is expected to make further changes to its bond-buying program. The Australian central bank tweaked its last MPC report by removing any reference to when inflation is likely to hit its target – originally 2024 – leaving the RBA with some flexibility over hiking rates if needed. The financial markets are already ahead of the RBA and current market pricing is suggesting just over 100 basis points of rate hikes this year with the first hike (10bps) seen in May. The RBA reiterated that the board will not raise rates until inflation sustainable hits its 2% to 3% target and that the labor market is tight enough to generate wage growth that is materially higher than it currently is.

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The daily AUD/USD chart shows the pair just breaking below multi-month support before moving higher. This support level, around 0.7000, has held for many months, and while still vulnerable to further tests, and a probable breakdown, a short-term recovery back to a 0.7170/0.7180 zone cannot be ruled out. The CCI indicator remains in oversold territory and AUD/USD bears may benefit by waiting for this reading to wash out before setting up a position. Short-term relief before a confirmed move lower unless the RBA follows the Fed and turns further hawkish tomorrow in which case any relief will be fleeting.

AUD/USD Daily Price Chart January 31, 2022

IG client positioning data below shows retail are heavily net long AUDUSD with traders building their net longs and reducing their net shorts sharply over the last week.

Retail trader data show75.73% of traders are net-long with the ratio of traders long to short at 3.12 to 1. The number of traders net-long is 8.64% higher than yesterday and 26.60% higher from last week, while the number of traders net-short is 13.90% higher than yesterday and 37.75% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed AUD/USD trading bias.

What is your view on the AUD/USD– bullish or bearish?

 

Jan 31, 2022 |  Nick Cawley, Strategist. DailyFX