AUD/USD Forecast: bears hesitate, could bulls take a chance?
|- RBA to cut rates to a fresh record low this week, but already priced in.
- AUD/USD getting near a mid-term bottom? Aussie expected to bounce.
The Australian dollar didn't take notice that markets were open this past week. The AUD/USD pair spent these days confined to a measly 40 pips' range, briefly piercing the 0.6900 figure and closing it near the "highs," in the 0.6930 price zone. The country's macroeconomic calendar had little to offer, although the scarce data released was disappointing, as Building Permits were sharply down once again, falling 4.7% in April, while Private Sector Credit rose by less-than-anticipated in the same month.
Escalating US-Sino trade tensions and Trump's decision to apply tariffs on Mexico, starting as soon as this weekend, as punishment over immigration issues, unwound risk-aversion, weighing sharply on equities, usually a negative factor for the Aussie.
Chinese data release this Friday showed that economic growth keeps contracting as the official Manufacturing PMI resulted at 49.4 in May, in contraction territory, and below the market's expectations. The official Services PMI was also a miss, coming in at 54.3. That should have been another negative factor for the commodity-linked currency.
Finally, the RBA is in route to cut the cash rate to fresh record lows below the current 1.5%, the third and last factor that should have weighed the pair lower, although this last seems to be already priced in.
And yet, the pair held. What happened? Hard to explain. Gold advancing beyond $ 1,300.00 a troy ounce is quite a poor excuse. The same goes for the American dollar easing by the end of the week. One thing is clear: that that doesn't kill you makes you stronger. If the bearish trend doesn't resume shortly and the pair retakes the 0.7000 level, we may well be at the beginning of a bullish run. Take it with a pinch of salt at this point.
The RBA is having a monetary policy meeting next week, and of course, is the most relevant event for the Aussie. A rate cut, as said, is priced in, what's not priced in is whatever policymakers have to say about the future. Australia will also release next week Q1 GDP, seen at 0.3% vs. the previous 0.2%, and April Trade Balance and Retail Sales. China, on the other hand, will unveil the Caixin PMI, a bit less of a shocker after the official figures released this week.
Regardless the outcome of data and the monetary policy meeting, the globalized trade war will be critical, yet the AUD/USD pair needs to react and give a signal, either breaking below the mentioned multi-month low or firmly recovering above the 0.7000 figure, better if above 0.7100.
AUD/USD Technical Outlook
The weekly chart for the AUD/USD pair shows that, despite moving away from multi-month lows, the pair was capped by the 23.6% retracement of its latest daily slide at 0.6940. Moving averages maintain their strong downward slopes, with the 20 SMA converging with the 61.8% retracement of the same decline at 0.7072. Technical indicators have barely bounced from their recent lows, lacking directional strength and holding near multi-week lows. Chances of a longer-term recovery seem limited.
In the daily chart, the pair is currently battling with a bearish 20 DMA, unable to clear it, while the 100 DMA also stands in the 0.7080 region, reinforcing the relevance of the resistance area. Technical indicators have extended their recoveries but remain within negative levels, also suggesting that bulls are not fully convinced.
The 0.6940 Fibonacci level is the immediate resistance ahead of the 0.7000 figure, followed by 0.7070. The immediate support, on the other hand, is the mentioned low at 0.6865, where the pair bottomed twice so far. A break below it should trigger some stops and fuel selling interest, but the bearish momentum is set to accelerate only on a clear break below 0.6820, a long-term static support level.
AUD/USD sentiment poll
According to the FXStreet Forecast Poll, the pair may remain under pressure next week, but sentiment flips to bullish in the one and three months perspectives. Bears account for 73% of the polled experts in the monthly view, crashing to just 23% in the quarterly one, with bulls in this last, up to 68%. The most targets accumulate below the current level for next week, and just above in the monthly perspective, yet the overview chart shows that the moving averages in both timeframes maintain strong bearish slopes. In the longer run, the media remains neutral, with a wide range of possible targets persisting.
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