AUD/USD Weekly Forecast: Upside limited as the RBA prepares to slash rates

• The Reserve Bank of Australia paved the way for a cash rate cut to new record lows.
• US stimulus and growth data to keep speculative interest busy next week.
• AUD/USD is gaining bearish traction, broad greenback’s weakness prevents a collapse.

The AUD/USD pair started the week on the back foot, ending it with modest gains around 0.7110. The Australian dollar got hit by the Reserve Bank of Australia Minutes, as the document paved the way for a cash rate cut to a fresh record low of 0.1%. The strength of the local currency coupled with a local economic downturn after the latest Victoria’s lockdown, are among the reasons why policymakers decided to maintain a highly accommodative policy. The next RBA meeting will take place on November 3, coinciding with the US presidential election.

US jitters flooding Australian shores

The pair bottomed at 0.7020 this week, recovering roughly 100 pips afterwards on the back of the greenback’s broad weakness. The American currency has been under pressure amid a modest improvement in the risk-related sentiment, based on hopes that US authorities will come to an agreement about a coronavirus stimulus program. Pressure on the US dollar hurts its overseas counterpart and policymakers are taking note of it.

Nevertheless, negotiations between US Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi extended throughout the week. Both parts reported progress, and Pelosi said they were “almost there” on Thursday, but warned that it would take some time for the bill to pass the Congress. By the end of the week, hopes cooled, putting a cap to the aussie’s recovery.

A cautiously optimistic stance translated into a modest bounce from weekly lows in US stocks, which anyway ended the week in the red, preventing the commodity-linked currency from appreciating further.

Meanwhile, Australia is among countries that are baring quite well with the pandemic. As per official data, there are roughly 200 active cases in the country, with less than 20 hospitalized and none in intensive care. However, travel restrictions within the country persist, and authorities are hoping to allow interstate travel by Christmas. The economy is slowly improving, but like the rest of the world, further developments will continue to depend on the virus.

Unimpressive Australian economic figures

Data wise, China published its Q3 Gross Domestic Product last Monday, which showed that the economy grew 4.9% in the three months to September, a strong figure that anyway missed expectations. The country also released upbeat September Retail Sales and Industrial Production figures.

Meanwhile, Australian numbers were far from impressive, as the September Westpac Leading Index printed 0.22% from 0.49% in the previous month, while the preliminary estimate of Retail Sales for the same month came in at -1.5%. The preliminary October Commonwealth Bank Manufacturing PMI came in at 54.2 from 55.4 in the previous month,  while the Services PMI improved to 53.8 from 50.8 in August.

The country will kick-start the week publishing its September Trade Balance and will unveil Q3 inflation figures on Wednesday. As for the US, the focus will remain on stimulus, but investors will also take care of Q3 Gross Domestic Product to be out on Thursday. The US economy is expected to have grown around 30%, a record jump.

AUD/USD technical outlook

The risk for AUD/USD has become increasingly bearish, although it’s not there yet. The weekly chart shows that the pair keeps developing between directionless 100 and 200 SMAs, and stuck around a mildly bullish 20 SMA. Technical indicators have lost their bearish strength, but consolidate within neutral levels.

The daily chart shows that the AUD/USD pair has failed to recover beyond its 20 DMA, which lacks directional strength, while it hovers around the 100 DMA. Both moving averages are confined to a tight range, indicating no directional convictions. Technical indicators are now just below their midlines, offering modest downward slopes, somehow skewing the risk to the downside without confirming it.

The bearish case will be stronger if the pair finally breaks below the 0.7000 threshold, with the next possible bearish target at 0.6920. Below this last, the pair has room to extend its decline to 0.6840. The initial barrier to the upside is the 0.7200 level, followed by the 0.7250/70 price zone.

  

AUD/USD sentiment poll

According to the FXStreet Forecast Poll, the AUD/USD pair will likely ignore the RBA and advance from here on. The pair is seen bullish in the three time-frame under study, averaging 0.71 in the weekly and monthly perspectives but advancing beyond 0.72 in the quarterly view.  The number of those betting for a decline or seeing the pair consolidating decreased sharply in the three-month view.

As it has happened in the last few weeks, there’s a reduced number of participants betting for a slide below the 0.700 threshold, although they increase in the longer-run. Still, the Overview chart shows that moving averages are barely turning up. The most number of possible targets in three months comes above 0.7200 and extend towards 0.7700.

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