AUDUSD SIGNAL 25-02-2022 : AUDUSD Fails to Test January High Ahead of RBA Rate Decision.


AUDUSD SIGNAL : AUDUSD Fails to Test January High Ahead of RBA Rate Decision

AUDUSD SIGNAL : AUDUSD extends the decline from the monthly high (0.7284) as the Greenback appreciates against all of its major counterparts, and fresh data prints coming out of the US may keep the exchange rate under pressure as the Federal Reserve’s preferred gauge for inflation is expected to increase for the fifth consecutive month.

The update to the US Personal Consumption Expenditure (PCE) Price Index may influence AUDUSD as the core reading is expected to widen to 5.1% from 4.9% per annum in December, which would mark the highest reading since 1983, and another uptick may generate a bullish reaction in the US Dollar as evidence of persistent inflation puts pressure on the Federal Reserve to adjust its exit strategy.

AUDUSD SIGNAL  : As a result, AUDUSD may consolidate over the remainder of the month with the Federal Open Market Committee (FOMC) on track to implement higher interest rates in 2022, but the RBA rate decision may influence the near-term outlook for the exchange rate if the central bank adjusts the forward guidance for monetary policy.

A material change in the RBA’s language may prop up the Australian Dollar as the central bank acknowledges that “inflation had picked up more quickly than the Bank had expected,” and it remains to be seen if Governor Philip Lowe and Co. will prepare Australian households and businesses for a looming change in regime as the central bank pledges to “not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target band.”

In turn, the RBA may stick to a wait-and-see approach as “the Board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve,” and more of the same from the central bank may undermine the recent recovery in AUDUSD as market participants prepare for higher US interest rates.

Until then, AUDUSD may trade within a defined range as fails to test the January high (0.7314), but a further decline in the exchange rate may fuel the recent flip in retail sentiment like the behavior seen during the previous year.

The IG Client Sentiment report shows 57.92% of traders are currently net-long AUDUSD, with the ratio of traders long to short standing at 1.38 to 1.

AUDUSD SIGNAL : The number of traders net-long is 16.38% higher than yesterday and 2.32% higher from last week, while the number of traders net-short is 39.95% lower than yesterday and 31.67% lower from last week. The rise in net-long interest had fueled the flip in retail sentiment as 51.55% of traders were net-long AUDUSD last week, while the decline in net-short position comes as the exchange rate quickly bounces back from a fresh weekly low (0.7095).

With that said, AUDUSD may face headwinds ahead of the next RBA rate decision as another uptick in the US PCE Price Index puts pressure on the FOMC to adjust its exit strategy, and the advance from the January low (0.6968) may turn out to be a correction in the broader trend as the exchange rate appears to be reversing ahead of the yearly high (0.7314).

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