Signs of seller exhaustion ahead of the RBA

AUD/USD’s 4-hour chart is reporting a bullish divergence.
Monday’s inverted hammer is signaling bear fatigue.
A corrective bounce could be seen if the RBA meets expectations.

The AUD/USD market is flashing early signs of seller exhaustion ahead of the all-important RBA rate decision.

To start with, the 4-hour chart relative strength index (RSI) is reporting a bullish divergence. Meanwhile, the daily chart RSI is hovering below 30, indicating oversold conditions.

Further, Monday’s inverted hammer candle is warning of a reversal higher. The trend change would be confirmed if the pair finds acceptance above Monday’s high of 0.6707.

At press time, AUD/USD is trading at 0.6685, having hit a fresh multi-month low of 0.6678 a few minutes ago.

The Reserve Bank of Australia (RBA) is expected to keep interest rates unchanged at 0.75% and leave the door open for a rate cut in the second quarter. The bank is also expected to downgrade its economic growth forecasts due to coronavirus scare and bushfires.

Markets seem to have priced in the negative developments – the Australian currency has dropped more than 300 pips so far this year.

That alongside signs of bear fatigue on technical charts indicates scope for a corrective bounce post-RBA. The AUD, however, could suffer a deeper drop if the central bank sounds more dovish-than-expected.