AUD/USD Forecast 2019: Collateral damage from the US-China trade war

  • Slowing growth worldwide and particularly in China, to keep AUD/USD under pressure at the beginning of 2019.
  • The Reserve Bank of Australia is proving that its cautious stance has better effects on the economy than rushing into tightening.

Aussie dumped on slowing growth fears

The Aussie was a casualty of the US-China trade war, heading into the end of 2018 1,000 pips below its yearly high when compared to the greenback. Being among the wealthiest nations in terms of wealth per capita, the Australian economy suffered from the ups and downs, the downs mostly, of the US administration's decision to apply protectionism. A deteriorating domestic housing market, a result of tightening lending conditions and weakening demand, is also behind the AUD collapse. Despite the Reserve Bank of Australia has kept its cash rate at 1.5% since August 2016, mortgages had become more expensive, while dwelling prices soared on the back of cheap money pumped into house buying as an investment. Indeed, house prices have eased recently, but with wages stagnated, progress in the sector is too slow, enough to trigger concerns among policymakers.

In its latest monetary policy of the year, the RBA left the cash rate unchanged as said, while Governor Lowe said that the "economy is performing well," yet adding that household consumption remains as a "continuing source of uncertainty," amid the imbalance between weak income and debt levels still high. While agreeing that the next move in rates will likely be to the upside, the RBA sees no reason for a near-term adjustment in the monetary policy, with speculative interest pricing in an upcoming rate hike in 2020.

A light of hope comes from the employment sector, which maintained a solid pace of growth in November, as the economy added 37K new jobs, with the participation rate increasing to 65.7%. However, the largest contribution came from part-time positions.

Trade war to keep weighing AUD lower in the first quarter of 2019

China is Australia's largest trading partner with over 30% of Australian exports going into the second world's largest economy, with the Aussie directly correlated with Chinese growth. Trade tensions have fueled the economic slowdown of the Asian giant, which, in the third quarter of 2018 grew just by 6.5%, the weakest year-on-year quarterly GDP growth since the first quarter of 2009. In the three months to September, the Australian economy grew by 0.6%, the weakest pace of expansion in two years.

The US has been trying to reduce its trade deficit with China, so far unsuccessfully, as the country's trade deficit with China during the first 10 months of this year matching the total deficit of 2017, despite tariffs. Both countries agreed on a 90-day truce that will end next February. The initial optimism about re-starting talks has already begun fading, despite some positive signs coming from both parts. Speculative interest at this point believes that a further escalation of the trade war is coming afterward, fueling the global economic downturn. That said, there's little room for an AUD recovery in the next quarter. More likely, the currency will continue to suffer from fears of what's to come and soft growth figures. However, Australia has the chance to emerge victorious even in the case of a deepening conflict between the US and China. Beijing could turn its eyes to its neighbor to replace agricultural products that come from the US if this last persists with its tariffs' policy.

AUD/USD Technical Outlook

The greenback is the overall winner this year, with the AUD/USD pair topping at 0.8135 in January, to trade at the time being roughly 100 pips above a yearly low of 0.7020 achieved in October. The bounce from this last stalled short of the 38.2% retracement of the yearly slide at around 0.7440, a level that proved strong multiple times between June and August, as it has been unable to recover above it ever since piercing it. Long-term charts indicate that the risk is skewed to the downside as in the weekly and the monthly charts, the pair is developing below all of its moving averages. The bearish case is firmer in the monthly chart, with a break below the yearly low confirming more slides coming, first heading to 0.7032, December 2016 low and later to 0.6826, 2016 yearly low. At this point, the dollar doesn't seem to have the strength enough to take down this last. The 61.8% retracement of the yearly slump stands at 0.7710, a level that the pair can reach on a firm recovery above the mentioned 0.7440, but not overcome if the trade war continues. 

AUDUSD

 

AUD/USD Point & Figure Chart 

Gonçalo Moreira by Gonçalo Moreira, CMT


Early warnings this market has been on weak footing for several years occurred in the form of counts 1 and 2 established in 2011. After playing around the parity level for a year, at the beginning of 2013 the pair succumbed again leaving a large column of Os. Vertical count 3 was then established targeting the 0.6000: the low of the 2008 crisis and unwinding of the carry trade. More recently, the reversal from the 2016 lows generated an upside target at 0.9600 which is threatened with a break below the very 0.6800 figure. Only a break of the 0.8100 levels would change the trend to bullish mode and offer hopes of the 0.9600 target being reached.


AUDUSD

 

AUD/USD Elliot Wave Analysis 

Gregor Horvat by Gregor Horvat


AUDUSD is trading bearish since 2011, now looking for another push down within wave V to complete higher degree wave III, after only three waves of recovery from 2015 lows. This correction should be fully retraced so ideally market is going towards 0.6000 zone.


AUDUSD

 

AUD/USD Camarilla Pivot Point Forecast 

Nenad Kerkez by Nenad Kerkez


The price has already played out a giant M 1 2 3 bearish pattern on the weekly time frame. Providing that we have a big trendline that is thrusting M L5 camarilla pivot and an additional ascending trend line at M L4, we might see a bounce to retest M point 2 at 0.7500.



 

Forecast Poll 2019

 

Bullish 48.1%
Bearish 44.4%
Sideways 7.40%
Average Forecast Price 0.7192
 
EXPERTS 1 YEAR
FXOpen team 0.7450 Bullish
Dmitriy Gurkovskiy 0.6800 Bearish
Brad Alexander 0.8000 Bullish
ForexGDP Team 0.6000 Bearish
Dmitry Lukashov 0.7300 Bullish
Chris Weston 0.7300 Bullish
Gregor Horvat 0.6400 Bearish
Nenad Kerkez 0.7300 Bullish
Joseph Trevisani 0.8200 Bullish
Ed Ponsi 0.8000 Bullish
HotForex Team 0.6400 Bearish
George Hallmey 0.9692 Bullish
Alberto Muñoz 0.6100 Bearish
Yohay Elam 0.6500 Bearish
Walid Salah El Din 0.7000 Bearish
OctaFx Analyst Team 0.7150 Sideways
Jeff Langin 0.6500 Bearish
Scott Barkley 0.6825 Bearish
ING Bank 0.7200 Sideways
Danske Bank 0.7400 Bullish
National Australia Bank 0.7500 Bullish
Royal Bank of Canada 0.6700 Bearish
WestPack Bank 0.7000 Bearish
Banque Nationale du Canada 0.7600 Bullish
BMO Capital Markets 0.7480 Bullish
CIBC Bank 0.7800 Bullish
Brown Brothers Harriman 0.6600 Bearish

 

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