AUD/USD’s recent selloff has caused the Relative Strength Index (RSI) to slip back into oversold territory. This is a bad sign for the currency pair, as further losses are likely. However, a move above 30 on the RSI will likely result in a near-term rebound.
The selloff in the AUD/USD may be overdone, as the Australian retail sales report may have little impact on the currency pair. It’s expected that household spending rose by 0.4% in August, after expanding by 1.3% in July. However, the Reserve Bank of Australia warns that the private sector’s spending behavior remains an important source of uncertainty, which could further weigh on the currency pair.
On the other hand, a US CPI report that could spur a 75 bps rate hike from the Fed could also be a big influence on the currency pair. In that case, the RSI could fall along with the exchange rate.
Despite the recent selloff, AUD/USD is likely to continue commerce towards its yearly lows. US economic data such as the Consumer Price Index and core CPI are expected to show persistent inflation. The core CPI is expected to rise to 6.5% in September, which could further push the US Dollar higher. These indicators are important as they put pressure on the Federal Reserve to keep a steady pace of interest rate hikes.
Investors’ sentiment is a major factor in the currency pair’s trend. During risk-off market conditions, the Euro and Pound tend to decline. A relief style rally would turn fortunes around. If sentiments were to rebound, the AUD/USD could see a rebound.
The Federal Reserve is continuing to move ahead of its Australian counterpart. Chairman Jerome Powell has stated that additional 50 basis point increases are likely at the next two meetings. The Fed is also expected to continue winding down its balance sheet as early as June. If the FOMC does raise interest rates, it would likely cause a softer Australian dollar. If they don’t raise interest rates, the US dollar may continue to perform better against the Aussie dollar.
Despite the recent selloff in the AUD/USD, the British Pound may be poised to push higher in the near term, after stabilising from wild swings at the start of the week. Analysts believe that 2022 will be a very volatile year for investors, and this could make it difficult to predict the UK currency’s direction. Moreover, investors have sold risk assets ahead of expectations of higher U.S. interest rates and rattling up of tensions in Ukraine.