AUD/USD Forecast: good vibes and high hopes cannot last forever

Good market vibes beat the hawkish Fed and the neutral RBA

A week that began with worries about a flare-up in the Middle East ended on a positive note. The tensions around a response to the brutal chemical attack by the Syrian regime eroded as the week passed, with hopes for a controlled reaction. China, Australia's No. 1 trade partner, reported a surge in imports: good news for Australia and also contributed to calming trade tensions between China and the US. Also, the Trump Administration is now looking into a re-entry into the TPP agreement. The pact, which includes Australia, has been abandoned by Trump early on.

Lower geopolitical tensions and hope on trade pushed stocks higher, and the Australian dollar followed. 

In Australia, RBA Governor Phillip Lowe said rates are unlikely to move anytime soon maintaining the same line and not rocking the boat. Consumer inflation expectations ticked down from 3.7% to 3.6%, and Business Conditions dropped, but the impact was minimal. 

In the US, inflation rose to 2.4% on the headline and 2.1% on the core, both as expected. However, the rise and the consequent commentary by Fed officials raises the chances for four rate hikes in 2018. Moreover, the FOMC Meeting Minutes also showed confidence in the US economy and on inflation reaching its target. This shift in rate hike projections is not priced into the US Dollar 

Australian events: RBA Minutes, Jobs report

The week commences with sales of New Motor Vehicles and picks up with the RBA Meeting Minutes on Tuesday. They are likely to convey the same message of constant interest rates for the remainder of the year. The central bank may still express worries about wages, household debt, and the strong exchange rate while showing its satisfaction of global growth and the labor market.

On Thursday, the NAB Business Confidence will be of interest, but the jobs report will then rock the Aussie. Expectations are high: a gain of 31,500 positions in March, nearly double the 17,500 figure in February. The unemployment rate is forecast to slide from 5.6% to 5.4%, accompanied by a rise in the participation rate. As always, the distribution between full-time and part-time jobs is critical. 

Here are the events that will shape the Australian dollar as they appear on the economic calendar:

US events: Trump, retail sales, and Fed speakers

The political storm around Comey's book has not influenced markets, but internal and external politics are inseparable. Decisions that Trump may or may not take regarding Syria will undoubtedly move markets. As a risk currency, the AUD/USD reacts positively to cooler decisions and adversely when the situation deteriorates. Any developments about trade relations between China and the US also matter a lot. Australia depends on trade with both the No. 1 and No. 2 economies. 

The leading economic indicator on the US calendar is retail sales, due on Monday. A small acceleration is expected, and the Control Group is the primary gauge. Later on, Fed officials are scheduled to speak throughout the week. The most interesting speech is due on Tuesday: incoming New York Fed President John Williams will have a chance to lay out his thoughts. He has been quite optimistic of late. Bostic, Mester, Quarles, and outgoing NY Fed President Dudley can add to confirming four rate hikes in 2018.

AUD/USD Technical Analysis  - downtrend support works well

The rise of the AUD/USD is also seen in Momentum and the RSI. The pair jumped over the 50-day Simple Moving Average and is currently capped by the broader 200-day SMA which awaits around  A$0.7815. 

One bearish sign to bear in mind: the "death cross." The 50-day SMA recently crossed the 200-day SMA to the downside.  However, this nicely named pattern does not always work as advertised. There is another line that carries more weight: AUD/USD is capped by downtrend resistance in the channel.

Looking up, resistance awaits at 0.7815, the 200-day SMA and then 0.7850 that separated ranges during March. Further above, the round number of 0.7900 stopped the the pair's rise earlier in the year. 

On the downside, 0.7740 was a cushion in mid-April after serving as resistance earlier. Further down, 0.7710 was a line of resistance in late March. The cycle low of 0.7650 awaits below.

More: AUDUSD: Testing resistance at 0.7810

What's next for AUD/USD?

To reach higher ground and break above downtrend resistance, the mood would have to remain upbeat, and the Australian labor report would need to meet the high expectations. These are both high hurdles. An adverse turn by Trump on trade and an escalation in Syria may sour the mood. Moreover, Australia's labor market could be OK but disappoint the high hopes.

The FXStreet Forecast Poll reflects a bullish sentiment and further gains in the near, medium and long terms, contrary to the doubts expressed here.