- The RBA and the Fed both hinted rate cuts coming.
- AUD/USD with a limited potential upward despite the broad dollar's weakness.
The AUD/USD pair is closing the week with gains just above the 0.6900 figure, having recovered from a fresh multi-month low of 0.6831. The pair was up on broad dollar's weakness, as the lackluster Aussie remains unable to attract investors. Among the most relevant events that took place this week, RBA's Governor, Philip Lowe, said that the official cash rate would likely to be cut further. Among other things, Lowe said that there was “significant” underemployment hampering efforts to lift inflation. On a positive note, he added that the rate cut was not because “a deterioration in the economic outlook since the previous update was published in early May. Rather, it reflected a judgment that we could do better than the path we looked to be on."
The macroeconomic calendar was quite scarce in Asia, although data coming from Australia was quite disappointing, as the Westpac Leading Index fell in May to -0.08% from the previous -0.05%, consistently negative over the last six month, and, as the official report says, a clear signal that economic growth is likely to remain below trend through the rest of this year. The House Price Index decreased by more than anticipated in the first quarter of the year, coming in at -3.0% vs. the projected -1.6%.
RBA's Lowe will participate in a panel discussion at the Australian National University Leadership Forum early Monday, an event that has little chances of shedding light on the monetary policy. Beyond that, there won't be relevant macroeconomic events in the country and China.
The main driver for the pair has been Wall Street. US Indexes surged on speculation the ECB and the Fed are in their way of adding more stimulus, with the S&P reaching a fresh record high before retreating. So far, equities ignored geopolitical tensions between Iran and the US, which anyway benefited them, as the conflict underpinned the price of oil. Lowe's words limited Aussie's rally.
By the end of the week, poor US data and a lack of follow-through in equities were just enough to keep the pair afloat. Looking ahead seems the dollar will remain weak, but so will the Aussie. A better option will be to trade such currencies against firmer rivals, such as the CAD, and as long as fears of an oil shortage keep oil supported, or safe-havens Yen and CHF.
AUD/USD Technical Outlook
The AUD/USD pair has traded in the lower end of the previous weekly range, maintaining a bearish long-term stance. The weekly chart shows that the 20 SMA has accelerated south above the current level, while the 100 and 200 SMA converge over 500 pips above the current level. Technical indicators lack directional strength but remain well into negative territory, all of which keeps the risk skewed to the downside.
Daily basis, attempts to extend gains were contained twice by a flat 20 DMA at around 0.6930, while the larger moving averages offer bearish slopes well above the shorter one. The Momentum indicator retreated sharply after reaching its mid-line, while the RSI indicator hovers around 45 with a modest downward slope, also indicating that the downside is favored. The first support comes at 0.6860, followed by the long-term 0.6820 static support level. A break below this last could see the pair extending its slump toward the 0.6740/70 region. Resistances come at 0.6940 and 0.7020, with steady gains above this last exposing the 0.7100 figure.
AUD/USD sentiment poll
Bulls seem to have taken over the AUD/USD pair according to the FXStreet Forecast Poll, as sentiment indicates that the pair will advance in the three timeframes under study. Nevertheless, the average targets in all the cases come below the 0.7000 level, somehow reflecting the current dollar's weakness but also absent interest in the commodity-linked currency.
The Overview chart shows that in the one week and one-month perspectives the average target is just above the current level, although in the three-month view, the moving average retains a firmly bearish slope, with the pair seen then between 0.6700 and 0.7000.
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