The Australian dollar halted the two-day decline against the greenback and pushed to a high of 0.8762 ahead of the Reserve Bank of Australia’s interest rate decision, while the British pound retraced the overnight advance after failing to break above the 10-Day moving average.
The Australian dollar halted the two-day decline against the greenback and crossed back above the 10-Day moving average to reach a high of 0.8762, and the exchange rate may continue to push higher over the next 24 hours of trading as investors anticipate the Reserve Bank of Australia to hold the benchmark interest rate at 3.00% in October. However, as the AUD/USD exceeds its daily ATR, we may see the pair pull-back over the next few hours of trading to fill-in the gap from the 100-SMA at 1.5932, and may continue to trend sideways throughout the U.S. trade as investors weigh the outlook for future policy. Meanwhile, Credit Suisse overnight index swaps are up 187bp this month as the RBA maintains a neutral policy stance, and long-term expectations for higher borrowing costs is likely to drive the aussie-dollar higher as investors speculate the central bank to tighten policy over the next 12 months.
The British pound retraced the overnight advance against the U.S. dollar after failing to break above the 10-Day moving average, and the GBP/USD may test the September low over the week as the pair continues to search for a bottom. The pound-dollar remains little changed from Friday after moving nearly 70% of its average true range on Monday, and the pair is likely to hold steady throughout the North American session as the greenback remains weighed against the majors. Nevertheless, as the GBP/USD continues to close below psychological resistance at 1.6000, we may see the pair retrace the advance from March as the Bank of England holds a dovish outlook for future policy, and may continue to trade below the 10-Day moving average as the pair maintains the downtrend from September.
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[I]To discuss this report contact David Song, Currency Analyst: <[email protected]>[/I]