AUD/USD Forecast: heightened prospects of RBA rate cut weighs on Aussie
|- AUD/USD erases more than 100 pips this week.
- Labour market data from Australia hints at dovish RBA shift.
- US-China trade dispute keeps investors on edge.
The AUD/USD pair started the week a little below the 0.70 marks and lost more than 100 pips, closing every day of the week in the negative territory. Escalating geopolitical tensions amid the ongoing U.S.-China trade dispute and soft labour market data from Australia this week weighed on the Aussie and caused the pair to slump to a fresh multi-month low of 0.6864 on Friday and close the week near that level.
On Monday, China announced that in retaliation to the Trump administration's tariff hike, it will adjust the import tariffs on a target list of $60 billion worth of U.S. goods starting June 1. Although President Trump adopted a less aggressive tone this week as he said that they would make a deal with China when the "time is right," and added it could happen much faster than people think, the antipodean's struggled to stage a meaningful recovery.
Friday's headlines confirmed that the trade conflict is unlikely to be resolved any time soon. China's South China Morning Post reported that China was planning to suspend trade negotiations if the U.S. failed to show "sincerity" in the next round of talks and the ruling Communist Party’s news outlet, People's Daily, in a front-page article wrote that the trade war with the U.S. would only make China stronger.
The data published from Australia this week showed that the unemployment rate ticked up to 5.2% in April and the full-time employment decreased by 6,3000 following March's 49,200 growth. Furthermore, the Wage Price Index in the first quarter came in at 0.5% to fall short of the market expectation of 0.6%, reviving expectations of the Reserve Bank of Australia going for a rate cut at its next meeting on June 4 and put additional weight on the AUD's shoulders. In fact, National Australia Bank economists said that they were now expecting the bank to lower the rate by a total of 1% by the end of the year.
Next week, the RBA is scheduled to release the minutes of the May meeting, which could provide fresh clues regarding a rate cut in the near term. The pair's recovery attempts are likely to remain shallow and stay technical in nature. The Westpac Leading Index on Wednesday is unlikely to receive a significant market reaction. Meanwhile, investors will be paying close attention to fresh developments surrounding the U.S.-China trade war.
AUD/USD Technical Outlook
Technically, the weekly chart shows oversold readings with the Relative Strength Index (RSI) moving to its lowest level since September, hinting at a technical recovery before the next leg down. However, the pair remains below the key 20-week and 50-week moving averages, suggesting that the bearish trend is intact.
Looking at the daily chart, the RSI seems to have pierced below the 30 marks for the first time since the January 2 flash crash, pointing at an overdue technical correction. Nevertheless, the 20-day and the 50-day moving averages maintaining their downward slope, confirming that bears are still in control of the pair's price action.
The pair could face the initial hurdle at the 0.7000 psychological level ahead of 0.7065 (50-DMA) and 0.7100 (100-DMA). On the flip side, 0.6830 (January 17, 2016 low) aligns as the first support followed by 0.6775 (January 2 flash crash low).
AUD/USD sentiment poll
According to the FXStreet Forecast Poll, the pair is set to remain under pressure next week but could recover on a one-month view. However, the average target for the one month view is now below 0.70, hinting at a weak recovery.
The Overview chart fails to paint a clear picture regarding the next breakout but reaffirms the view that the next move is likely to be a technical correction rather than the continuation of the downtrend.
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