AUD/USD Forex Technical Analysis – Debelle’s Dovish Comments May Have Stopped the Rally

The AUD/USD surged to the upside last week, driven higher by hawkish comments by the Reserve Bank of Australia. However, an RBA deputy governor threw some water on the rally on Friday that could mean a short-term top is in.

The RBA set a bullish tone early in the week when the minutes of its July 4 meeting, released on July 18, showed Australia’s central bank now estimates the “neutral” official cash rate to be 3.5 percent, a full 200 basis points above where the cash rate is now.

The Aussie spiked higher on the news because it effectively means the RBA believes it can substantially increase the cash rate, currently at a record low 1.5 percent, without stalling economic growth.

The Australian Dollar closed lower on Friday, but still managed to post a solid gain for the week, after RBA deputy governor Guy Debelle said:  No significance should be read into the fact the neutral rate was discussed at this particular meeting.”

Dr. Debelle also pointed out the current wave of hawkishness infecting other major central banks did not mean the RBA had to follow their lead.

“The policy rates in both the U.S. and Canada still remain below that in Australia,” he said.

If Friday’s price action is any indication, then we could be looking at lower AUD/USD prices this week.

Technical Analysis

The main trend is up according to the weekly swing chart. Taking out last week’s high at .7988 with conviction could lead to an eventual test of the May 2015 top at .8162 or the major long-term 50% level at .8165.

The main range is .7329 to .7988. If there is a correction then its retracement zone at .7658 to .7581 will become the primary downside target.

Forecast

Based on Friday’s close at .79125, the direction of the AUD/USD this week will be determined by trader reaction to the long-term downtrending angle at .7944.

Overtaking .7944 and sustaining the move will lead to a test of last week’s high at .7988. Overcoming this price with conviction could set the tone for an eventual move into .8162 to .8165.

A sustained move under .7944 will signal the presence of sellers. The daily chart is wide open to the downside with the next major target angle coming in at .7769. This is followed by the key retracement zone at .7658 to .7581.