AUD/USD appears to be on track to test the September low

AUD/USD appears to be on track to test the September low (0.7006) as RBA Governor Philip Lowe pledges to not increase the official cash rate (OCR) “for at least three years,” and it seems as though the central bank will offer a more details over the coming months as officials plan to update the economic in “early November.”

In a recent speech, Governor Lowe emphasized that the RBA is “considering what more we can do to support jobs, incomes and businesses in Australia to help build that important road to the recovery,” with the central bank going onto say that the board is “committed to do what we reasonably can, with the tools we have, to support the recovery of the Australian economy.”

The comments suggests the RBA is in no rush to implement more non-standard measures after tweaking the Term Funding Facility (TFF) in September, and the central bank may stick to the sidelines at the next interest rate decision on November 3 as “the recent Budget provided welcome further support to the economy.”

However, the ASX 30 Day Interbank Cash Rate Futures continues to reflect a greater than 70% probability for a rate cut in November, and speculation for an RBA rate cut may produce headwinds for the Australian Dollar as the “Board continues to consider how additional monetary easing could support jobs as the economy opens up further.”

In turn, it remains to be seen if the decline from the yearly high (0.7414) will turn out to be an exhaustion in the bullish trend or a change in AUD/USD behavior as the RBA relies on its current tools to support the economic recovery, and key market themes resulting from the COVID-19 pandemic may continue to sway exchange rate as the US Dollar shows an inverse relationship with investor confidence.

Nevertheless, the tilt in retail sentiment has dissipated following the speech by Governor Lowe as the Sentiment shows 50.40% of traders net long AUD/USD, with the ratio of traders long to short standing at 1.02 to 1. The number of traders net-long is 3.48% lower than yesterday and 34.96% higher from last week, while the number of traders net-short is 0.56% lower than yesterday and 23.40% lower from last week.

The decline in net-short position could be indicative of profit-taking behavior as AUD/USD fails to retain the monthly opening range, while the jump in net-long interest has helped to alleviate the tilt in retail sentiment as only 39.87% of traders were net-long AUD/USD last week.

With that said, AUD/USD may attempt to test the September low (0.7006) as it fails to retain the opening range for October, but the Relative Strength Index (RSI) instills a more constructive outlook as the indicator reverses from oversold territory and breaks out a downward trend carried over from the previous month.

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