AUD/USD Forecast: damage already done

Down for an eleventh consecutive day, the AUD/USD pair is finishing the week sub-0.6800 and at levels not seen since the January’s flash-crash. The pair is extremely oversold as the market can only see the sharp imbalances between the RBA and the Fed, as the latest announced a one and off 25bps rate cut this week, after the Australian Central Bank cut rates to a record low of 1.0% partially motivated by the Fed anticipating a more dovish approach to monetary policy, and partially due to lagging inflation. The trade war escalated by US President Trump only exacerbated AUD/USD decline.

Australian data released these days failed to impress, as New Home Sales’ collapse in June, falling monthly basis by 12.4%, while Building Permits were down by 1.2%. Q2 Australian Trimmed Mean CPI, the RBA’s preferred inflation measure, was up by 0.4%, slightly better than the 0.3% of the first quarter of the year. The annual comparison resulted at 1.6%, matching Q1 outcome and slightly better than the 1.5% expected. Also, the AIG Performance of Manufacturing Index improved to 51.3 in July from 49.4 in June. This Friday, Australia published June Retail Sales, which rose by 0.4%, surpassing the market’s expectations.

Wall Street collapsed Thursday and remained under pressure at the end of the week, weighing on the Aussie, as the US President, Donald Trump, said that he is ready to shoot another round of tariffs on up to $300B of Chinese goods. He tried to take it back on Friday, saying that it could delay or even halt them if China “takes positive action.” However, the damage is already done.

In the calendar next week

The upcoming days will be a bit more busy in Asia, as both, Australia and Canada have data scheduled.  Among the most relevant events is the RBA which will have a monetary policy meeting next Tuesday, although is expected to keep rates on hold this time. Nevertheless, the dovish message is set to remain. China will publish the Caixin Services PMI at the beginning of the week and later, July international trade data and inflation figures.

Whatever data says, it would likely be offset by sentiment, driven by central banks and trade tensions.

AUD/USD Technical Outlook

The weekly chart for the AUD/USD pair shows that it plunged below a firmly bearish 20 SMA, while the Momentum indicator consolidates at fresh multi-month lows and the RSI heads south at around 36. Furthermore, the 100 SMA is crossing below the 200 SMA, in the 0.7400 region. The strong bearish momentum could ease, but there are no signs it would end. In the daily chart, technical indicators have barely decelerated their declines after reaching oversold conditions while the decline extended well below moving averages.

Oversold, but bearish. An upward corrective movement is not out of the cards, with 0.6820 being the first relevant barrier ahead of the 0.6900 figure. Supports, on the other hand, come at 0.6760 and the 0.6700 figure, with a break below this last opening doors for a bearish extension toward 0.6500.

AUD/USD sentiment poll

The FXStreet Forecast Poll shows that the bearish sentiment will likely persist next week, as 55% of the polled experts seen it down, with an average weekly target of 0.6777. The sentiment turns positive in the one month and three months views, although the pair is seen holding in the 0.68 price zone.

The Overview chart shows that most targets accumulate below the current level for the shorter perspective, with the moving average offering a sharp downward slope. The monthly moving average also heads sharply lower, although investors hardly see the pair above the current level. The media is also bearish in the three-month view, although as usual, the spread of possible targets is wide amid uncertainty about future monetary policies and distorting the analysis.

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