AUD/USD Forecast: Topped out? Deglobalization, downbeat data and the disease may send it down

05/15/2020 15:20:49 GMT|ByYohay Elam

AUD/USD has declined after rising for five weeks amid a worsening global mood.
Sino-American relations, China's rate decision, the RBA's minutes, and coronavirus statistics stand out.
Mid-May's daily chart is showing bears are gaining ground.
The FX Poll is showing experts are bearish in the short, medium, and long terms.

The winning streak is over, can the Aussie resume the rally? The answer mostly depends on factors outside the land down under. Sino-American relations, central banks in both countries, and only a few Australian events are set to move the currency pair.

This week in AUD/USD: Weak Australian jobs, a worsening market mood

Coronavirus in Australia: According to Johns Hopkins University, the number of COVID-19 cases has surpassed 7,000, yet the number of deaths remains below 100. Authorities seem successful in keeping the disease under control despite gradually opening up. Various flareups have been reported in other countries.

Australian jobs: Nevertheless, the Australian economy has taken a hit due to the domestic shuttering and also lockdowns elsewhere. The nation lost nearly 600,000 jobs in April, worse than expected. While the Unemployment Rate stood at only 6.2%, the participation rate dropped sharply.

Chinese data: Australia's No. 1 trading partner reported a drop in retail sales but an increase in industrial output last month. The latter figure is encouraging for Australian exports.

Chinese bullying: On the other hand, relations between both countries remain somewhat tense. Beijing has issued a warning to Canberra after Australia sought investigating coronavirus. The secrecy around the disease is causing concern.

Sino-American relations: Ties between the world's largest economy have had a more significant impact on AUD/USD, by boosting the safe-haven dollar. President Donald Trump stated that the era of globalization is over and suggested cutting off economic relations with Beijing. The background is the upcoming elections, in which both Democrats and Republicans are united in anger towards China. A fall in global trade is adverse to Australia.

US stimulus: America's largest parties have different ideas about the next means of relief for the economy, but they do share a desire to act. That has helped improve the sentiment in markets. Jerome Powell, Chairman of the Federal Reserve, has called for elected officials to act.

No negative rates: Powell powered up the dollar by rejecting negative interest rates, to the chagrin of some bond investors and President Trump. He said that all members of the Fed agree on this, but said the Fed is ready to act.

See Powell Analysis: Doom, gloom, and no negative rates set to tank stocks, boost dollar

US economy: Unemployment claims rose by nearly three million in the week ending May 8, worse than expected but trending lower.

Australian and Chinese events: RBA minutes, testy relations

The Australian dollar remains, first and foremost, a "risk currency," dependent on the global mood – rising and falling with stock markets. Relations between China and Australia remain significant with defused tensions supporting the Aussie, while heated rhetoric pushing it lower.

The calendar features the Reserve Bank of Australia's meeting minutes. They may shed some light on recent deliberations within the central bank. The RBA left rates unchanged in May and seemed reluctant to expand its Quantitative Easing program, as peers in New Zealand did. Is there demand within the institution to print more money down the line? That could weigh on the A$. Expressing optimism would keep it up.

The People's Bank of China will announce its interest rate decision, yet the various tiers of its byzantine monetary system make the message coming out of the PBOC more important than the change in borrowing costs. A worried tone would weigh on the Aussie while an upbeat one could drive it higher.

Here the most prominent Australian and Chinese releases on the economic calendar:

US events: Reopening, retail sales, and relations with China

The US has seen COVID-19 statistics trending lower, especially in the hardest-hit New York area. However, flareups in places that were swift to let stay-at-home orders are already showing. Will the US keep things under control or will the situation worsen? It is essential to note that lifting the lockdown does not imply a return to normal, as fear may keep consumption depressed.

Sino-American relations are also of interest. These have fluctuated between productive talks about trade and mostly mutual blaming. If Trump is serious about hastening the decoupling, global markets and AUD/USD could struggle. If the president shifts his focus to domestic political rivals, the pair may find some relief.

The Federal Reserve stands out with two events in the upcoming week. Powell speaks again, this time in an official testimony together with Treasury Secretary Steven Mnuchin. He will likely repeat the same messages of vowing to act but refraining from negative rates. It will be interesting to see if Mnuchin and lawmakers will adhere to his calls to provide more fiscal relief.

The second event is the Federal Open Markets Committee's (FOMC) meeting minutes from the latest rate decision. Once again, investors will likely try to gauge if the Fed is unified against sub-zero rates. Views on the economy, the recovery, and the additional policies are of interest.

Housing figures for April are released during the week and will likely show substantial falls. The upcoming week's jobless claims are for the week ending on May 15, the one on which the Non-Farm Payrolls surveys are held, and may move markets more than previous publications. Markit's preliminary Purchasing Managers' Indexes for April are also of interest and will likely remain depressed.

Here are the top US events as they appear on the forex calendar:

AUD/USD Technical Analysis

The Aussie/USD daily chart is showing that the pair drifted below the uptrend channel that accompanied it and began trading sideways. It is capped by the 100-day Simple Moving Average and has failed to break above the stubborn 0.6560 level. The new peak is marginally below the previous one – a lower low.

On the other hand, AUD/USD continues benefiting from upside momentum and trades above the 50-day SMA. All in all, bears are gaining ground.

Support awaits at 0.6370, which provided support twice in May. It is followed by 0.6250, a significant support line in April. Close by, 0.6210 served as resistance in late March and is also relevant.

Some resistance awaits at 0.6475, a separator of ranges, and it is followed by 0.6560 mentioned earlier. The next significant cap is only at 0.6660, which was a high point before the crisis.

AUD/USD Sentiment Poll

The ship has begun turning south – and the initial slow movement may be followed by a faster descent. Deglobalization and concerns about the virus could send investors away from the Aussie despite Australia's success with coronavirus.

The FXStreet Forecast Poll is showing that experts have downgraded targets for the short and medium terms, while they have upgraded long-term goals. Overall, the bias is bearish on all timeframes.

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Analysis