AUD/USD Forecast: bullish potential capped by fundamentals

  • Australia to release employment data this week, no news scheduled in China.
  • AUD/USD bearish long-term stance persists despite the weekly recovery.

The AUD/USD pair recovered a good part of the ground lost in the previous one, although selling interest around 0.7100 kept capping the upside. The pair is set to close the week with gains after falling in the previous three, having developed this last one within the limits set by the previous, keeping the downward potential unchanged.

There are two main reasons why the Aussie is unable to gather strength: the shift to neutral from the RBA, and slowing growth in China reaffirmed once again by macroeconomic data released these last few days. Inflation at factory levels increased by just 0.1% YoY in February, while New Loans also rose by less-than-anticipated. Industrial Production was also a miss according to January's official release. In Australia, housing-related data came in below expected, with the only positive note coming from the Melbourne Institute Consumer Inflation Expectations, up by 4.1% in March.

As it happened with most high-yielding currencies, the advance can be attributed to broad dollar's weakness, in a mixture of soft US data and Brexit hopes pushing Pound sharply up.

In the US-China trade war front, there were some contradictory headlines, with rumors suggesting a meeting between Trump and Xi-Jinping being delayed to April arising some concerns. Nevertheless and by the end of the week, US President Trump said that negotiations should wrap up within four weeks, expressing optimism about striking a deal. Optimistic comments but no deal yet, a situation that extends it time.

 This upcoming week, the Australian macroeconomic calendar has a bit more to offer, with the most relevant event being the release of employment data next Thursday. The sector has been giving signs of being healthy, and no negative news are expected in that front, which means that the Aussie could fall sharply on a poor report. Earlier in the week, the RBA will release the Minutes of its latest meeting.

AUD/USD Technical Outlook

The daily chart for the AUD/USD pair shows that it has been pressuring the 0.7100 figure since Tuesday, now holding a few pips below it yet still unable to break above it. A 20 DMA caps the upside converging with the mentioned level, while the 100 and 200 SMA remain above it, with the longer one offering a stronger downward slope. The Momentum heads marginally lower and the RSI barely higher, both stuck to neutral readings, rather reflecting the ongoing consolidation than suggesting a certain upcoming directional move.

In the weekly chart, technical indicators are also stuck to their midlines, but the pair remains well below all of its moving averages, favoring another leg lower should bulls get discouraged on repeated fails around 0.7100. The first relevant support is 0.7050, the weekly low, en route to 0.6980. Below this last, the 0.6900/20 price zone is the next possible bearish target. Resistances, beyond the mentioned 0.7100 figure are the 0.7150/60 region and the 0.7230/50 price zone.

  AUD/USD sentiment poll

The FXStreet Forecast Poll shows that bulls retain control of the pair, still seen bullish next week, with 55% of the polled experts going long. The average target, however, remains below the elusive 0.7100 level, with the Overview chart offering a modest bullish slope. For the upcoming month, the pair is seen extending its consolidative phase around 0.70/0.71, while bears took over in the 3-month outlook, although with bulls hopes for a rally up to 0.74/0.75, leaving the average target above the current level. Overall, seems the market will continue to be cautious amid slowing growth and political uncertainty dominating the news headers.

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