The rampant spread of the Delta variant worldwide is causing new disruptions to global economic activity, which is leading to renewed investors' interest in more easily convertible currencies. This is good news for U.S. dollar bulls. Check out our comprehensive EURUSD analysis to learn about the greenback's path to recovery.
At its meeting earlier today, the Governing Council of the RBA expectedly decided to maintain the near-negative Cash Rate unchanged at 0.10 per cent. The Delta variant fallout on Australia's economic activity prompted the Council to dial back its growth expectations for the third quarter.
Among other things, the fallout is disrupting the global supply chains, which keeps demand high but stymies productivity. RBA's prevailingly dovish rhetoric had an adverse impact on the value of the Aussie.
The AUDUSD was rising until recently in an ascending channel, as shown on the 4H chart above. Yet, the newly revised recovery outlooks of the RBA are likely to cause a temporary correction within the uptrend.
While the broader uptrend continues to be active, as underpinned by the ADX indicator, the bearish crossover on the MACD signals the prevalence of bearish momentum in the short term.
The emergence of a Hanging Man candle from the upper limit of the ascending channel elucidates the likely beginning of the new correction. The price action is likely to drop to either the 23.6 per cent Fibonacci retracement level at 0.73907 or the 38.2 per cent Fibonacci at 0.73364 before bulls can regain control.
Notice that the two Fibonacci thresholds roughly outline the boundaries of the previous consolidation range. This makes the probable dropdown of the price to one of the two limits of this previous support area seem even more likely.
Despite the recent growth in consumer prices, which is caused by the aforementioned heightened demand, the RBA had to recalibrate its outlook on the likely path to recovery. This is just as inflation reached 3.8 per cent, the highest level since October 2008.
"Prior to the Delta outbreak, the Australian economy had considerable momentum. GDP increased by 0.7 per cent in the June quarter and by nearly 10 per cent over the year. […] The recovery in the Australian economy has, however, been interrupted by the Delta outbreak and the associated restrictions on activity. GDP is expected to decline materially in the September quarter [...]. "
That is why the Council decided not to change the scope and pacing of its asset purchase facility. The bank will continue to "purchase government securities at the rate of $4 billion a week and to continue the purchases at this rate until at least mid-February 2022."