AUD/USD Forecast: too early to call for a reversal, too late to join the bearish train
|- Concerns about Chinese economic slowdown cap the upside for the Aussie.
- AUD/USD still bearish, but an interim bottom starts to take shape.
The AUD/USD pair plunged to 0.7202, its lowest since January 2017, recovering from the level and poised to close in the red for a fourth consecutive week, with selling interest aligned around the 0.7300 figure. The Aussie was also hurt by plummeting metals, with gold and cooper reaching fresh yearly lows and silver falling to its lowest since early 2016 and the prevalent negative sentiment. By the end of the week, however the pair trimmed its losses, helped Thursday by a sharp rally in US equities, which soared on the back of solid earnings report that offset risk-related sentiment, and by a rally in the Canadian dollar Friday, as strong inflation figures boosted odds of a third rate hike in the country.
Chinese data released this week was overall discouraging, as July retail sales increased by 8.8%, less than the 9.0% previous and forecasted. While still strong, China relies on consumer spending to offset the escalating trade war with the US, and despite solid, the number is suggesting the economic slowdown could accelerate. Also suggesting so was Industrial Production, which grew 6.0% in July from a year earlier, matching the previous month's reading but below expectations of a 6.3% advance. Soft Chinese data tends to have negative effects on the Aussie, as this last economy is quite dependent on its Asian counterpart.
The most relevant piece of macroeconomic news coming from Australia was monthly employment figures, which fell short of reviving demand for the Aussie, as according to the official figures, the country lost 3,900 jobs in July, while the unemployment rate fell to 5.3%, the lowest since 2012 as the participation rate decreased to 65.5% from 65.7%. On a positive note, full-time employment climbed 19.3K, while part-time employment decreased by 23.2K.
Governor Lowe spoke this Friday in the semiannual parliamentary testimony, offering quite an encouraging stance, as he said that overall, the Australian economy is moving in the right direction. He sounded less concerned about falling house prices and weakness into the property market while adding that lower inflation should be understand as a positive thing, giving that it eases the cost of living pressures for households. The words seem more a consequence of the RBA´s decision to cut its inflation perspective for this year rather than a sign of improved economic developments.
The RBA will release the Minutes of its latest meeting next week and release Q2 Retail Sales, the most relevant events scheduled for next week, while there are no big events scheduled in China. Nevertheless, China and the US will resume trade talks next week, with a Chinese delegation traveling to Washington next week. Market's attention will center around the meetings that will take place on Aug. 21 and 22.
AUD/USD technical outlook
The AUD/USD pair retains its bearish stance according to technical readings in the weekly chart, as the 20 SMA keeps heading sharply lower below the larger ones and some 200 pips above the current level. Technical indicators in the mentioned chart hold within negative readings, with the Momentum lacking directional strength but the RSI having extended its decline to flirt with oversold readings.
In the daily chart, the latest dollar's decline has been enough for indicators to correct oversold readings, now aiming north within negative levels, but with the price well below its moving averages, which limits the upside potential, as while the recovery may continue, the pair is far from bullish.
The 0.7250 is a strong support, but for sure, a more relevant one is now the weekly low set at 0.7200. 0.7160 comes next, as the pair has there several relevant lows from late 2016, and if this one gives up, 0.7000 comes as the next logical target. Resistances, on the other hand, come at 0.7370 and more relevant, the 0.7440/50 region, the top of the range that contained the price for almost two months. Only beyond this last bears will consider unwinding longs.
AUD/USD sentiment poll
Sentiment is bearish according to the FXStreet Forecast Poll but the wide range of possible targets, particularly in the monthly and 3-month perspective suggest that the pair may be close to an interim bottom. The bearish trend seems firmly only weekly basis, with bears accounting for 61%, but the overview chart shows that the downward strength decreases monthly basis, and suffers a u-turn in the quarterly view.
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