AUD/USD Weekly Forecast: Nose-diving and poised to challenge 0.7000

• Australian mixed macroeconomic figures reflect the country’s economic struggle.
• The US Federal Reserve is set to discuss further tapering this month.
• AUD/USD is extremely oversold but without signs of an upcoming U-turn.

The AUD/USD pair is in free fall, trading at  0.7018 at the time of writing, its lowest since November 2020, and likely to end the week nearby. The American dollar strengthened on the back of risk aversion and chances of further tightening in the US. In times of turmoil, investors run to the greenback no matter what. And uncertainty was the main theme these past days, following the announcement of a new coronavirus strain, reported initially in South Africa on November 25.

Markets feared the new variant could delay the already tepid economic comeback while exacerbating supply chain issues, one of the main reasons inflation is skyrocketing around the globe.  However, there is still little information about it. While Omicron is more contagious, it is also less deadly. It is also unclear whether existing vaccines are effective against it, yet at this time, several countries suspect that the variant has been locally circulating before it was actually reported. Overall, authorities are ending the week, realising that travel restrictions are not the best way to fight the virus.

Powell done, RBA coming up next

On Wednesday, US Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen testified on the CARES act before a Senate special Commission. Powell noted that inflation had spread more broadly and that the risk of persistent inflation has risen. He added that it's time to remove the term “transitory” to describe price pressures and the Fed would discuss speeding up tapering in their December meeting, to counter inflation. Yellen backed his words, adding that the new Omicron coronavirus variant could pose a “significant” threat to the global economy.

Wall Street tumbled, although it managed to recover some ground ahead of the weekly close. Also, US Treasury yields remained subdued, with the 10-year note holding below the 1.50% peak. The AUD/USD pair followed US equities on their way down but ignored their comeback. Weaker gold prices also weighed on the aussie, as the bright metal stands at around $1,770 a troy ounce after repeatedly failing to retake the 1,800 threshold.

Data wise, speculative interest ignored a missed US employment report. The country added just 210K new jobs in November, much lower than the 550K expected. However, the Unemployment Rate improved to 4.2%, better than the 4.5% expected, while the Participation Rate jumped to 61.8%.  On the other hand, the November ISM Manufacturing PMI beat expectations with 61.1 in November, while the Services PMI printed at  61.9.

Australian data was mixed as the country slowly moves away from lockdowns, yet also reflecting the economic struggle. October Building Permits plummeted 12.9% MoM, although the Q3 Gross Domestic Product contracted by 1.9% QoQ, better than the -2.7% expected.

The upcoming week will start with Australian publishing November TD Securities Inflation. The Reserve Bank of Australia has already noted that higher inflation won’t affect their monetary policy and that a rate hike before 2024 is out of the table for now.

The RBA will meet on Tuesday and will probably cool down any speculation triggered by Monday’s report.

As for the US, the country will publish the November Consumer Price Index, expected to be downwardly revised to 5.8% YoY from 6.2%.

AUD/USD technical outlook

The AUD/USD pair is down for a fifth consecutive week, without signs of changing course. The weekly chart shows that it has extended its decline below the 100 and 200 SMAs, both converging around 0.7190  while the 20 SMA extended its slide above the longer ones. Meanwhile, technical indicators head firmly lower within negative levels, and with the RSI just now approaching oversold readings.

The pair is oversold on the daily chart, although technical indicators maintain their firmly bearish slopes, despite being at extreme levels. At the same time, the pair is developing below a firmly bearish 20 SMA, which stands over 200 pips above the current level.

An immediate support level comes at 0.7000, followed by 0.6960. A break below the latter exposes the 0.6900 figure. Sellers are now aligned around 0.7100, the first resistance level, followed by 0.7140.

AUD/USD sentiment poll

The FXStreet Forecast Poll suggest that AUD/USD will remain under pressure in the near term, to later correct extreme oversold conditions. The pair is expected to continue falling in the weekly perspective, as bears account for 58% of the polled experts. On the monthly view, bulls represent 69%, with the pair seen on average at 0.7183. Buying interest decreases in the quarterly perspective, although bulls maintain the lead with 52%.

The Overview chart indicates mounting uncertainty. Nevertheless, the three moving averages head south, although, beyond the weekly view, the possible trading range widened. Most targets accumulate below 0.7400 and above 0.6800, the latter, a possible target for this month.