AUD/USD Forecast: Short-term consolidation likely, focus on US 10-yr yield

Exhaustion near 0.8078 (the 127.2% Fib extension of Dec 2016 low/Mar 2017 high/June 2017 low) in September proved to be costly for the Aussie bulls as the AUD/USD pair fell from 0.8103 (mid-Sep high) to 0.7733 (last week's low). The Aussie ended last week at 0.7773 and trades below the 50-day moving average (DMA) level of 0.7785 this Monday morning.

There are no first-tier Australia data releases this week, hence the focus is on the monthly readings for US business and consumer confidence and the Fed minutes.

Macro data/events to watch out for

RBA's Debelle - More of same?

RBA members have been jawboning the Aussie over the last couple of weeks. Assistant governor Debelle is likely to reiterate the message delivered in September, i.e. the economic growth is too slow to justify a rate hike.

NAB confidence indices are likely to show continuation of the diverging trends - business conditions are favorable while Australian consumers remain pessimistic

Fed minutes

Minutes from last month's Federal Open Market Committee meeting are slated for release on Wednesday and could shed more light on the outlook for inflation and interest rates. With 12 out 16 members expecting a rate hike by year-end, there is little scope for a dovish tone.

US retail sales and CPI

US retail sales are seen rising 0.4% in September vs. 0.2% contraction seen in August. Meanwhile, core CPI is seen rising 0.2% m/m in September.

Keep an eye on the 10-year Treasury yield

Hawkish Fed minutes and a better-than-expected data would be good news for USD, however....

Traders need to keep an eye on the 10-year treasury yield, which is showing signs of exhaustion around the critical resistance level of 2.4%. Note that the Aussie is hovering around the 'former resistance turned support level' of 0.7740-0.77, thus the currency is best positioned to benefit from a (potential) bearish reversal in the US 10-year treasury yield from the 2.4% level.

Fed speakers are likely to continue preparing markets for another rate hike in December. The 10-year yield could break above 2.4% on hawkish Fed and strong data, in which case the traders would start eyeing 0.75 levels in the Aussie.

Technicals

4-hour chart

Observations

• Falling channel - support seen at 0.7720-0.77 levels
• The downward sloping 50-MA likely to offer strong resistance
• Watch out for a potential bullish price RSI divergence

Weekly chart

Observations

• The pair is closing in on 0.7740-0.77 (former resistance turned support)
• The 50-MA and 100-MA have bottomed out

View

• The pair is seen consolidating in the range of 0.77-0.79 in the short-term.
• The first sign that the pair has bottomed out would be - multiple closes above the 50-MA on the 4-hour chart (i.e. the 4-hour 50-MA bottoms out).
• On a weekly close below 0.77 would signal the continuation of the sell-off from the high of 0.8125. A convincing break above 2.4% on the US 10-yr treasury yield chart would open doors for a break below the 0.77 handle in the Aussie.