AUD/USD Forecast: RBA and China put the Aussie in the bearish path

  1. The RBA downgraded its inflation forecast, exacerbating risk-related slump.
  2. AUDUSD seen falling toward 0.7100 despite bears hesitate and an overstretched USD rally.

The Australian dollar was not immune to its American counterpart strength, moreover after a dovish RBA Monetary Policy Statement. The AUD/USD pair fell to 0.7279 a fresh YTD low, as risk aversion took over the world this Friday, on reports indicating ECB officers are concerned about the exposure of European banks to Turkey. Local share markets nose-dived, US indexed followed suit, weighing on the commodity-linked currency.

The RBA had its monetary policy meeting this week and the Statement released this Friday offered a gloomy picture that added to Aussie's slump, as the central bank downgraded its inflation forecast, now seeing underlying inflation slowing to 1.75% by the end of the year. Policymakers don't expect inflation to hit 2.5% target until 2020,  somehow hinting rates could remain at record lows until then. The statement also indicates that the RBA maintains its positive outlook on growth, seeing annual GDP above 3.0% for this year and the next one.

The pair fell from a two-week high of 0.7452, achieved on the back of positive, although not shocking Chinese data released through the week, although escalating trade war tensions overshadowed the positive numbers. Chinese trade surplus in dollar terms was below the market's forecast of $39.33B, printing in July $28.05B amid a large increase in imports, up to 27.3% in the month, while exports grew just by 12.2%. Inflation in the country was up 0.3% MoM in July, while from a year earlier, inflation rose by 2.1%, both above the previous readings and market's forecasts. The yearly Producer Price Index also beat expectations printing 4.6% vs. the 4.4% forecasted.

Things turned sour after the US announced a new round of tariffs on Chinese goods worth $16 billion, with an immediate answer from China, hitting the same amount of US goods with tariffs between 5% and 25%, all of them coming into effect by the end of the month.

 In the Australian macroeconomic calendar for the upcoming week, employment data and Consumer Inflation Expectations next Thursday outstand. China will release Tuesday Retail Sales and Industrial Production figures, numbers that could also affect AUD's prices.

AUD/USD technical outlook

The AUD/USD pair is poised to close the week at the lower end of its latest range, at a brink of entering a bearish market that could see it dropping to the 0.7160 area, where it bottomed December 2016. Technical readings in the weekly chart indicate that the slump is poised to continue next week, as the pair is developing far below all of its moving averages, with the 20 SMA accelerating south below the larger ones. Technical indicators in the mentioned chart head lower, the Momentum still with a neutral stance, but the RSI gaining downward traction and currently at 31.  Daily basis, technical readings also support a steeper decline ahead,  with the price finally moving away from a horizontal 20 DMA, while the 100 DMA maintains its bearish slope above it. Technical indicators in the mentioned chart head south almost vertically well into negative territory, also supporting additional slides ahead.

The key is the 0.7250 region, a strong static support, with a break below it exposing the mentioned 0.7160 price zone, ahead of the 0.7000 threshold. Resistances, on the other hand, come at 0.7370 and more relevant, the 0.7440/50 region, the top of the range that contained the price for almost two months.  

AUD/USD sentiment poll

The FXStreet Forecast Poll shows lower targets ahead for the pair, with 64% of bears targeting on average 0.7290 for the next week. Bulls are a majority in the monthly and 3-month perspectives, but in the quarterly view, the average target has been downgraded to 0.7142 from 0.7369, over 200 pips, somehow suggesting that speculative interest is rather considering an upward correction rather than thinking of a bottom. The FXStreet Overview chart shows that the moving averages maintain their downward slopes, albeit, in the 3-month view, the range of possible targets is still quite wide.

 

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