- US-Sino trade war taking its toll on the commodity-linked currency.
- AUD/USD could correct higher, but the bearish trend remains firmly in place.
The AUD/USD pair started the week gapping higher, getting boosted by the surprise result of the general elections backing PM Morrison against the odds. The positive news, however, was not enough to trigger a meaningful run, considering the ongoing government is not China-friendly. The gap was closed Tuesday following the release of the RBA Meeting's Minutes and comments from governor Lowe, paving the way for a rate cut, probably as soon as next June.
The document showed that policymakers dropped the reference to "not a strong case" for a near-term move in the cash rate, given the uncertainties related to the outlook that could affect reaching their inflation target. The Minutes also stated that a rate cut would be appropriate if there's no further improvement in the labor market. Australia also released the Westpac Leading Index, which showed that the country's economic growth would likely remain sluggish into the second half of the year, with the index falling to -0.1%, following March's 0.3% advance.
Mounting tensions between the US and China, as the American government was reportedly considering to include in a blacklist some Chinese surveillance tech-firms, took over the financial world at the beginning of the week. Concerns were exacerbated throughout the following days, as US Treasury Secretary Mnuchin said that there are no plans on resuming trade talks, announcing that US President Trump and Chinese leader Xi-Jinping will likely meet by the end of June. US Trump said Friday that Huawei could be part of a trade deal, using the company as a bargaining chip. China, in the meantime, sticks to its guns, and won't give up to Trump's demands.
The pair regained the 0.6900 level by the end of the week, as US data disappointed with Markit PMI indicating a sharp slowdown in May's manufacturing and services activity, and Durable Goods Orders plunging 2.5% in April. The AUD/USD pair upward potential, however, is being well limited by the sour tone of equities, pressure by US-Sino trade war, and prospects of a rate cut in Australia.
The upcoming week will include housing data from Australia, nothing that can change the ongoing bearish trend, while China will publish the May's official Manufacturing and Non-Manufacturing PMI, with the first seen falling into contraction territory. The US calendar will offer several minor reports, with the more relevant ones being the first revision of Q1 GDP and April core PCE inflation.
AUD/USD Technical Outlook
The AUD/USD pair trades above the 0.6900 ahead of the weekly close, yet below the weekly high of 0.6933, and technically retaining the bearish stance. The weekly chart shows that the pair moved within the lower half of the previous week's range, while technical indicators lack directional strength, the Momentum at its lows in negative ground and the RSI barely recovering from oversold levels. The 20 SMA in the mentioned chart maintains a robust bearish slope, currently at 0.7090, while the larger ones develop over 300 pips above this last, also heading lower.
In the daily chart, technical indicators are correcting oversold conditions, heading modestly up within negative levels, falling short of suggesting additional gains ahead. Moving averages in this last timeframe, continue heading lower with uneven strength well above the current level. Chances of a more relevant recovery are limited, although upward corrective movements are likely. The mentioned 0.6933 level is an immediate resistance, with a more relevant one at 0.6965, en route to the 0.7000/30 region. Supports, on the other hand, come at 0.6865, where the pair bottomed multiple times these last few days, followed by 0.6820.
AUD/USD sentiment poll
According to the FXStreet Forecast Poll, the pair is expected to bounce from the current levels, with an increasingly bullish sentiment, as bulls account 56% of the polled experts in the weekly view, up to 71% in the quarterly one. Gains, however, are expected to be limited, as the pair is hardly seen above 0.7000 in June.
The Overview chart shows that the weekly moving average bounce from a multi-year bottom yet remains below April levels, rather suggesting a corrective advance than a trend change. The positive momentum fades in the monthly media, although it also presents a bullish slope, turning flat in the quarterly basis, where the spread of possible targets is quite wide, indicating a lack of clarity over the future.
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