- RBA rate cut and collapsing trade talks maintain the upside capped for the Aussie.
- AUD/USD could extend gains, but there's a long way ahead of entering bullish territory.
The AUD/USD pair flirts with 0.7000 at the end of the week, as speculative interest is focused on pricing in an upcoming rate cut in the US, following dismal employment data. Global trade tensions and the anticipated RBA's rate cut limited Aussie's bullish potential throughout the week, with the pair posting a roughly 90 pips' gain, nothing impressive in terms of trend.
The Reserve Bank of Australia cut its cash rate to 1.25% a new record low, after having kept rates on hold at 1.50% for a record thirty three consecutive months, in an attempt to stimulate the local economy. Furthermore, Governor Lowe opened doors for additional cuts ahead by saying that it is not unreasonable to expect lower cash rates from here. Later he added that a weaker USD clearly complicates the rate outlook, and that was before the greenback accelerated its slump post-NFP release.
The US monthly employment report showed that the economy added just 75K new jobs in April vs. the 185K expected. The unemployment rate remained steady at 3.6%, but because of a decline in the participation rate to 62.8%. Wages' growth was below the market's expectations, up by 0.2% MoM and by 3.1% YoY. It was the second time this year that jobs' creation resulted below 100K, and for sure, lifted odds of a rate cut in the US, up to 75% for July according to CME FedWatch Group.
Meanwhile, US President Trump extended its trade war into Mexico, by announcing tariffs on all Mexican goods to come into effect next Monday. Talks in that front have been “good” so far, but tariffs will be anyway applied. Tensions between the US and China mounted as talks collapsed.
Australian macroeconomic data also kept the upside limited, as Retail Sales fell by 0.1% in April, missing the market's forecast of a 0.2% advance, while the preliminary estimate of Q1 GDP resulted at 0.4%, better than the previous 0.2% but below the 0.5% expected. The Chinese Caixin PMI were mixed, with the manufacturing one up and the services one down, although having little effect on the market after the official figures released in the previous week.
The upcoming week will start with China releasing May Trade data and Australia publishing the NAB's indexes on Business Confidence and Business Conditions. Chinese exports are seen declining in dollar terms, and the report will be a key measure of the future of global health. Later in the week, Chinese inflation, Retail Sales, and Industrial Production and Australian May employment figures will take center stage.
Seems Australia is in a lose-lose situation, which means that, despite broad dollar's weakness, chances of steeper gains are still quite limited.
AUD/USD Technical Outlook
The AUD/USD pair weekly chart shows that the recovery stalled well below a bearish 20 SMA, currently at around 0.7070, while technical indicators recovered from oversold readings, heading north but within negative ground. The 100 and 200 SMA maintain their bearish slopes some 400 pips above the current level.
In the daily chart, the pair settled above its 20 DMA which lacks directional strength, while the larger ones maintain their downward slopes above the current level. Technical indicators hold in high ground, the Momentum losing its bullish strength but the RSI advancing at around 58, supportive of some additional gains. The 0.7070 level is a major resistance, with a break above it favoring a test of 0.7150. The pair, however, would need to surpass 0.7250 to enter bullish territory, quite unlikely for the upcoming week. Supports are at 0.6920 and 0.6865, with a break below this last opening doors for a steeper decline.
AUD/USD sentiment poll
The FXStreet Forecast Poll shows that sentiment toward the pair is bullish weekly basis, but turns back bearish in the one and three months views. Bulls account for 50% in the shorter view, with an average target at 0.7030. In the other timeframes, the pair is seen back below the critical 0.7000 figure, reflecting the lack of interest in the Australian currency.
The Overview chart shows that the weekly moving average extended its bullish slope, but the longer ones maintain their neutral-to-bearish stances. In fact, the quarterly media offers a strong downward slope, with most targets accumulating below the 0.7000 mark.
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