AUD/USD Forecast: odds for a rate hike to keep Aussie subdued
|- AUD/USD to challenge the critical 0.7000 level this week.
- The US Federal Reserve meeting and Chinese growth data in the spotlight.
The AUD/USD pair fell to 0.6987, its lowest since early January flash-crash, after worse-than-expected Australian quarterly inflation missed the market's expectations, fueling speculation that the RBA will have to cut rates sooner than later. As informed by the Australian Bureau of Statistics, local CPI in Q1 remained flat at 0.0%, below the 0.5% advance in the final quarter of 2018. On a year-on-year comparison, inflation was up by 1.3%, well below the previous 1.8% and the expected 1.5%. The RBA Trimmed Mean measures of inflation were also well below the previous and the markets forecast, up by just 0.3% QoQ and by 1.6% YoY. Such readings boosted speculation of upcoming rate cuts in Australia, with odds of a 25 basis point cut next month up to roughly 65%.
It was a shortened week in Australia with a couple of holidays limiting activity and economic releases. China didn't release any relevant data, and when it comes to a trade deal with the US, the latest news suggest that a deal could be signed next June, which means that concerns about the trade war remain on hold.
The pair bounced Friday, despite solid US growth data, in what seems to be profit-taking ahead of the weekend, rather than market players' desire to unwind its dollar-long positions. Some caution ahead of next week first-tier releases included the Fed's monetary policy meeting and US April Nonfarm Payrolls.
The focus in Australia and China will be on growth, as both economies will release updated versions of April PMI. Chinese manufacturing activity is expected to be confirmed at 50.5, while the services sector is expected to moderate its pace of growth, with the index seen at 54.5 vs. the previous 54.8. The Caixin Manufacturing PMI is expected to have bounced from 50.8 to 51 in April. Worth mention that the market is far from believing the latest encouraging Chinese data, and fears about the economic performance are latent. Investors will tend to react to Markit data rather than the official numbers.
Australia will offer the AIG Performance of Manufacturing Index, seen at 51 in April, and some Housing data later in the week. If these last miss the market's expectations, the Aussie is meant to suffer, as the housing sector has long been a drag for the RBA.
Speaking of which is true that the market has put aside central banks lately, but for sure, they are in their way to retake the center stage. The Fed may have adopted a 'patient' stance, but rates in the US are above 2.0%. The RBA just recently shifted to dovish, and the market expects a cut from the current 1.5% rate.
AUD/USD Technical Outlook
The AUD/USD pair is down for a second consecutive week, bearish in the corresponding chart as it once again below a bearish 20 SMA, which maintains its downward slope below the larger ones. Technical indicators have turned lower and dipped into negative ground, skewing the risk toward the downside, although at least a daily close below the 0.7000 mark is needed to confirm additional declines ahead.
In the daily chart, the 20 and 100 DMA converge at around 0.7120, with modest downward slopes, indicating that the bearish potential is still limited amid the lack of sellers' conviction. Technical indicators have pared their declines near oversold readings, but the following limited bounce is way too shy to confirm a bottom has been put in place.
The pair is also trading below the base of its latest range, which increases odds of a bearish extension. 0.6980 is the immediate support ahead of the 0.6900 level, later followed by 0.6820. The mentioned 0.7120 price zone comes as the first resistance, en route to the 0.7200 price zone.
AUD/USD sentiment poll
According to the FXStreet Forecast Poll, the pair's decline is set to continue next week, with 73% of the polled experts going short. The tide turns in the monthly perspective, with bullish interest up to 63%, and the pair seen at around 0.7080. Not too surprising, the quarterly perspective sees bulls decreasing but holding a majority, and the average target holding below 0.7100.
The Overview chart, shows bearish moving averages in the three timeframes under study, with a neutral bias in the 1-month view. In the longer term, however, and despite the bullish sentiment, the largest number of targets is below the current level, with the pair seen mostly between 0.68 and 0.70.
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