AUD/USD Forecast: poised to continue defying gravity

AUD/USD at risk of retesting 2016 low at 0.6826.
Risk sentiment will continue leading the way, next week, through Chinese data.

Valeria Bednarik FXStreet

The AUD/USD pair fell to a fresh multi-year low near the key 0.7000 figure, as risk aversion dominated financial markets these days. Tensions between Italy and the EU over the budget of the first against the rules of the EU's Commission and a stalemate in Brexit negotiations, were the main concerns, despite both issues have been rolling for a couple of weeks. Worldwide equities collapsed to multi-month lows, weighing on the Aussie, in spite of resurgent bright metals.

But the greenback not only rallied on safe-haven demand. It also maintained its upward momentum during times risk-off sentiment eased, underpinned by solid local macroeconomic data which indicated that the world's largest economy continues growing at a solid pace. According to Markit preliminary October estimates, the private sector business activity "increased at a robust and accelerated pace," with the Composite PMI up to 54.8 from 53.9 in September, a three-month high. Also, preliminary Q3 GDP, released this Friday, was upbeat, coming in at 3.5% vs. the expected 3.3%. The better-than-expected figure, however, played against the greenback at the end of the week, as it helped equities pared the bleeding, denting dollar's demand and rather favoring some profit-taking ahead of the weekend.

In the data front, Australian macroeconomic calendar has been empty these last few days but will have some prominent releases in the upcoming ones, starting Wednesday with Q3 inflation, Trade balance data on Thursday, and Retail Sales on Friday. China will also offer some relevant figures, including the official October manufacturing and non-manufacturing PMI, the Caixin Manufacturing PMI and a PBoC rate decision. As usual, Chinese data will influence the Aussie amid the close commercial ties between the two countries.

AUD/USD technical outlook

Friday's bounce is helping the AUD/USD pair finish the week in the 0.7040 price zone, which maintains the dominant bearish trend firmly in place. In the weekly chart, the pair continues developing below a firmly bearish 20 SMA, which extended these days its decline below the larger ones. Technical indicators in the mentioned chart have turned lower but remain within familiar levels well into negative ground, as the pair has moved just 20 pips below its former yearly low. Nevertheless, there are no technical signs of downward exhaustion, leaving doors open for a test of 0.6826, January 2016 low.

In the daily chart, the pair has been steadily rejected from a bearish 20 DMA for a second consecutive week, with the moving average further below the larger ones, which also head south. The Momentum indicator lags, flat below its 100 line, but the RSI already heads south at fresh multi-week lows of 37, also supportive of a bearish continuation for the upcoming week. The 0.7100 figure is the immediate resistance ahead of 0.7160, while beyond this last, the main upward target is 0.7250. The long-term bearish trend can come to an end on a firm recovery above this last. Below the 0.7000 psychological threshold, on the other hand, the mentioned 0.6826 is the next support/target.

AUD/USD sentiment poll

According to the FXStreet Forecast Poll, the AUD/USD pair will extend its decline next week, to start recovering ground afterward. The weekly average target comes at 0.7012, with a whopping 75% of the polled experts going short, from just 33% in the previous week. In the 1 and 3 months views, despite bulls are now a majority, the average targets have been downgraded by a few pips and still below the critical 0.7250 figure. The Overview chart, however, reaffirms the ongoing bearish trend, with moving averages heading steadily lower. A break below the 0.7000 psychological threshold, is still unclear.

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