AUD/USD is flashing warning signs for bulls after the pair hit a fresh 2-month low on Wednesday, with any attempted rally quickly being sold rather than sustained—a pattern that should concern investors holding long positions.

The most recent example came after the U.S. August PCE report, where inflation rose less than expected. That should have been bullish for AUD/USD, as it lowered the probability of the Fed hiking rates in October or December, and indeed the dollar and U.S. rates initially fell while AUD/USD rallied. However, the move proved short-lived, with the pair erasing those gains and pushing on to a new 2-month low.

This tendency for rallies to get sold is being reinforced by domestic Australian data as well. Australia's August CPI report came in below estimates, which pushed government bond yields

lower and reduced the probability of an RBA rate hike in November to below 26.0%. If rate-hike odds fall further, the Aussie could remain under additional pressure.

Technically, the picture is turning more bearish too. A monthly bearish engulfing candle has formed, and price has pierced the 76.4% Fibonacci retracement of the 0.6867–0.7238 rally. Both daily and monthly RSIs continue to point to downward momentum, reinforcing the bearish setup.

Taken together, these fundamental and technical signals suggest a test of the March monthly low is likely, unless a significant reversal in U.S. dollar strength or interest rates emerges to change the trajectory.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)