AUD/USD Forecast: further decline depending on equities' behavior

  • RBA's Governor Lowe offered a more balanced approach to rate moves smashed the Aussie.
  • AUD/USD could pierce 0.7000 these next few days.

The Australian dollar suffered from an unexpected change in the RBA's approach to future rate moves last Friday, falling sharply this week against the greenback. The pair bottomed at 0.7060 this Friday, now hovering around the 0.7100 figure, still way down for the week.

Governor Lowe spoke early Wednesday, saying that the rate outlook is now more balanced, with equal chances for a rate hike or a rate cut,  amid increasing concerns of the housing downturn in the country, alongside absent inflationary pressures. Australian data released these last few days fell short of market's expectations, with Building Permits plummeting 8.4% in December, and Retail Sales down by 0.4% in the same month.

 China released at the beginning of the week the Caixin Services PMI for January, which resulted slightly better-than-expected, although the country celebrated the New Year with bank holidays throughout the week limiting the effects of Chinese data on the Aussie.

Adding to the bearish case, late Thursday there were some news indicating that US President Trump and his Chinese counterpart Xi-Ping, are unlikely to meet before the end of the trade truce, cooling down hopes of a soon resolution in that front. More pressure over the Aussie came from equities, which turned negative by the end of the week amid mounting concerns about the slowing economic growth worldwide.

 Australia has a mostly light calendar next week, mostly focused on sentiment index, with the only relevant figure scheduled being February Consumer Inflation Expectations next Thursday. China will release the same day January Trade Balance figures, granting some definitions around the AUD/USD pair. China will update inflation data on Friday.

The Aussie has one chance of avoiding the collapse, and that's equities. As long as the long-term bullish market remains in place and despite normal downward correction, the downside potential will be limited, moreover considering the greenback is up not because of self-strength, but because it is the less weak.

AUD/USD Technical Outlook

The pair has now weekly technical readings indicating a probable leg lower ahead, as in the mentioned time frame, it broke and settled well below its 20 SMA, while still developing far above the larger ones, roughly 400 pips above the current level, while technical indicators turned sharply lower, entering negative ground.

In the daily chart, and after failing to surpass the 200 DMA, the pair finally broke below the shorter ones, now converging around 0.7175, as technical indicators hover within negative levels, having lost directional strength this Friday amid the intraday recovery which trimmed early losses.

A strong support for next week is the 0.7000/30 price zone, where the pair has multiple daily lows. Once below, 0.6820 comes at sight. Resistances from the current level are at 0.7145, 0.7200 and the 0.7250 price zone.

 AUD/USD sentiment poll

The FXStreet Forecast Poll indicates that the Aussie is set to continue falling against its American rival, as 57% of the polled experts seen it down next week, from just 36% previously. Market sentiment turns neutral in the monthly view, while in the quarterly perspective, bulls take over, up to 53%. The average targets, however, have been downgraded in the shorter time frames under study, holding unchanged in the 3-month view. The Overview chart indicates that the pair could break below the 0.7000 figure this week, as the bearish slope from the short moving average is quite strong, although the downward strength losses momentum as time goes by, anyway maintaining the risk skewed to the downside.  

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