AUD/USD Forecast: to cut or not to cut, RBA takes center stage

The AUD/USD pair fell for a third consecutive week, hitting 0.6984, a fresh multi-month low, to finally settle around 0.7015, recovering some ground Friday amid firmer US equities, and a soft US ISM Non-Manufacturing PMI. Nevertheless, the strong US employment report, which also backs equities' rally, keeps the greenback on the winning side against most high-yielding rivals.

The Aussie took a dive on the back of poor Chinese data as the official April Manufacturing PMI resulted at 50.1, below the previous 50.5 and barely holding in expansion territory, while the Non-Manufacturing index also fell, to 54.3 from 54.8 in April. The Caixin Manufacturing PMI came in at 50.2 for the same month.  Local data was also softer-than-anticipated, with the focus on housing data. According to HIA, New Home Sales declined by 0.1% MoM in March, while Building Permits for the same period plunged by 15.5%.

However, the biggest weigh for the commodity-linked currency came from Wall Street, as Powell's decision to ignore President Trump and stick to the higher-rates policy, dragged major indexes lower after flirting with record highs.

The market believes that the RBA is closer to a rate cut, or even two, with the first coming as soon as this week, as the RBA is set to meet early Tuesday. Forecasts suggest that policymakers may keep the benchmark rate at 1.5%, which may give the Aussie a temporary boost. It will depend, however, on the statement as of the dovish wording prevails, the pair will likely remain under pressure. Australia will also release March Retail Sales and trade balance early Tuesday, with the market trying to make out something out of them all.

China will unveil April Trade balance next Wednesday, with exports and imports seen falling sharply. The negative effect it may have could be offset by hopes China and the US may come to an agreement on trade as soon as next Friday. The country will release April inflation Thursday, seen up by 2.5% YoY. Such a result will be Aussie positive, yet again, the imbalance between the RBA and the Fed will probably keep the upside limited.

AUD/USD Technical Outlook

The weekly chart for the AUD/USD pair shows that the risk remains skewed to the downside, as the pair has held at the lower end of the previous week's range, below a firmly bearish 20 SMA and far below the larger ones. Technical indicators have extended their declines within negative levels, with the RSI barely decelerating, now at 40.  The mentioned 20 SMA comes at around 0.7110, acting as a strong dynamic resistance.

According to the daily chart, bears remain in control, as despite Friday's recovery, the pair remains below its moving averages, with the 20 DMA slowly accelerating south below the 100 DMA, both around the 0.7100 level, reinforcing its relevance as resistance, while technical indicators barely pared their declines near oversold territory, without signaling a possible recovery. Supports this week come at 0.6980, 0.6900 and the 0.6820 level. Resistances are located at 0.7070 and the 0.7110 price zone, with gains beyond this last exposing 0.7160.

AUD/USD sentiment poll

According to the FXStreet Forecast Poll, the bearish momentum will drive the pair below 0.7000 this week, with 89% of bears setting an average target of 0.6952. Bulls dominate the one and three-month view, representing 41% and 53% respectively, although with the pair holding below the 0.7100 level.

 In the Overview chart, however, moving averages maintain their bearish slopes, extending them when compared to last week, in the shorter perspectives. In the quarterly one, the moving average is flat, once again, reflecting uncertainty rather than a soon-to-come bottom.

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