AUD/USD Weekly Forecast: Correction or U-turn? Aussie to provide nice opportunities

The AUD/USD pair retreated from a fresh multi-month high of 0.7660 to end the week with modest losses in the 0.7440 price zone. The aussie soared after the Reserve Bank of Australia surprised with a hawkish message. The central bank had its monetary policy decision and maintained the cash rate unchanged at 0.1%.  However, Governor Philip Lowe remarked that the Russia-Ukraine crisis pushing commodity prices higher will likely lift local inflation.

RBA drops the patient stance

“The main sources of uncertainty relate to the speed of resolution of the various supply-side issues, developments in global energy markets and the evolution of overall labor costs,” Lowe said. Policymakers dropped their patient approach, and the removal of several key sentences from the central banks’ statement hinted at a possible rate hike in the upcoming meetings.  They also said that the next decisions would be based on inflation and labor cost data. Given the Australian Federal election in May, speculative interest is now pricing in a rate hike in June.

 Across the Pacific, the US Federal Reserve published the Minutes of its latest meeting. The document showed that US policymakers “generally agreed” on reducing the balance sheet by $95 billion a month, detailing a maximum of $60 billion in Treasuries and $35 billion in mortgage-backed securities would be allowed to roll off per month. The document reminded market participants how aggressive the central bank is, as it is also expected to hike rates by 50 bps in more than one meeting this year.

Australian economic recovery continues

Generally speaking, Australian economic indicators continue to signal economic expansion alongside increased price pressures. March TD Securities inflation jumped to 4.0% YoY from 3.5% previously. Also notable, the Australian Trade Balance posted a surplus of 7.45 billion in February, much worse than anticipated.

The upcoming week will be a busy one on the data front. Australia will publish March NAB’s Business Confidence and April Westpac Consumer Confidence. The country will unveil March employment figures on Thursday and is expected to have added 40K new jobs. Additionally, China will report March inflation data and the February Trade Balance.

On the other hand, the US will publish the March Consumer Price Index, which is expected to reach 8.3% YoY. The core reading is foreseen at 6.6%, up from the previous 6.4%. The country will also release March Retail Sales and the preliminary estimate of the April Michigan Consumer Sentiment Index.

AUD/USD technical outlook

The AUD/USD pair’s weekly chart suggests that the ongoing decline may be just corrective. The pair holds well above moving averages, while technical indicators turned lower but held within positive levels. The key is the 0.7394 level, the 38.2% retracement of this year’s rally. If the level holds, a higher high for the year will remain on the cards. A break below it, on the other hand, may hint at a steeper decline, initially targeting 0.7230.

The daily chart shows that the pair is currently struggling around a firmly bullish 20 SMA, which remains above the longer ones. Technical indicators, in the meantime, retreated from overbought readings and are currently about to cross their midlines into negative levels.

Bulls could have better chances if the pair recovers above 0.7500, the 23.6% retracement of the aforementioned rally. The next resistance levels come at 0.7570 and the year’s high at 0.7660, en route to the 0.7700 figure.

AUD/USD sentiment poll

The FXStreet Forecast Poll suggest that AUD/USD has posted an interim top and that it is all downhill from here. Bears dominate the three time-frame under study, although the number of those betting for a slide decreases from 86% in the weekly view to 56% in the quarterly perspective. However, the pair is seen not far around the 0.7300 level on average, in all cases.

The Overview chart signals uncertainty. The weekly moving average heads firmly lower, while the other two also head south, although with decreasing strength. What it’s worth mentioning, is the wide spread of possible targets in the longer views of over 1,000 pips, somehow anticipating the need of some extra definitions before defining the next directional move.