Foreign exchange news -- Australian dollar / US dollar plunge is urgent? Be alert to oversold RSI indicators

The continuous deterioration of risk sentiment has been a drag on commodity currencies. The Australian dollar / US dollar once fell below the low of 0.6877 in July 2020, and the RSI index entered oversold, suggesting that the exchange rate may fall further.

AUD / USD trend forecast: sharp sell-off pushes RSI indicators back to oversold

U.S. stocks are brewing a bear market, with the Australian dollar / dollar hitting an annual low of around 0.6834, and the current market theme may push the exchange rate further down to the low of 0.6648 in June 2020, as major central banks seek to adjust monetary policy to try to desalinate inflation.

Looking into the future, it seems that the Federal Reserve will continue to be ahead of the Bank of Australia, because the chairman of the Federal Reserve, Jerome Powell, revealed that "the Committee generally believes that the next few meetings should consider further raising interest rates by 50 basis points", and the author believes that the expectation that the Federal Reserve will further change its monetary policy will continue to keep the dollar rising. In addition, the Federal Open Market Committee (FOMC) plans to start the table reduction in June.

At the same time, the Bank of Australia (RBA) seems to take a slower pace in normalizing monetary policy, because "the board of directors does not plan to reinvest maturing government bonds" and the governor of the Bank of Australia (Philip Lowe) and his colleagues currently do not plan to sell government bonds purchased during the pandemic, which will allow its holders to naturally extend their balance sheets.

In other words, against the backdrop of deteriorating risk appetite, it is expected that the expectation of the Federal Reserve to further raise interest rates by 50 basis points before the next RBA decision may continue to put pressure on the Aussie / US dollar, and further decline in the exchange rate may trigger a tilt in retail investor sentiment, as seen last year.

Ig customer sentiment indicator (retail position report) shows that 74.02% of retail investors hold net long positions in AUD / USD, and the ratio of long positions to short positions is 2.85:1.

The net long position increased by 8.09% compared with yesterday and 22.30% compared with last week; The net short position increased by 7.5% compared with yesterday and decreased by 19.5% compared with last week.

Although the interest of net bulls has increased, the congestion behavior eased earlier this week. At the same time, the decrease in net short positions coincided with the AUD / USD hitting an annual low of 0.6834.

In other words, at a time when commodity currencies are weak across the board, the Australian dollar / US dollar may try to dip to the low of 0.6648 in June 2020, and the RSI index falling below the 30 level may be accompanied by further declines in the exchange rate, as seen earlier this month.

Technical analysis of AUD / USD trend

After falling below the opening range in May, aud / USD fell further and once fell below the low of 0.6877 in July 2020. As the exchange rate fell and refreshed its annual low to around 0.6834, RSI indicators were brewing into the oversold range.

The fall of RSI below the 30 level may be accompanied by a further decline in AUD / USD, as seen earlier this month. If it falls below / closes below the Fibo overlap range of 0.6770-0.6820, it may further probe near the low of 0.6648 in June 2020.

If it breaks, it may further test down near 0.6510-0.6520, and even fall to the low of 0.6373 in May 2020.

However, if the weakness falls below / closes near the Fibo overlapping range of 0.6770-0.6820, it may push the AUD / USD back to the line of 0.6940,

If it breaks, it may further go up the test range of 0.7070-0.7090.