Tough Week Ahead for the Australian Dollar

Last week saw the Australian Dollar fall sharply as the US NFP result fuelled some sharp selling in the pair. Subsequently, traders are watching the pair closely as it nears a key level of support, for any signs of weakening in the face of concerted pressure.

The Aussie Dollar fell under significant selling following the surprise US NFP result which saw the indicator posting a 271k gain. The strong US labour market data was compounded by the continuing dovishness from the RBA which hinted at a pending rate cut. Subsequently, the AUD was sold off strongly and continues to fall, with no end in sight, with the pair currently trading around the 0.7037 level.

The week ahead is likely to be volatile for the AUD as data released whilst the market was closed indicates a contraction of Chinese export by -6.9% y/y. This is exceedingly troublesome for the embattled economy given Australia’s reliance upon China’s demand for commodities. Subsequently, a lack of Chinese exports could lead to a significant fall in Australian output thereby placing the currency under further stress.

This most likely short term outcome to the faltering Chinese data will be some sharp swings to the AUD throughout the early part of the week. In addition, the latter part of the week will see the US Unemployment Claims figures released which is likely to cause some volatility as the market scours the news for hints as to the Fed’s intentions.

Given the recent tightening in the US labour markets, odds of a change to the Federal Funds Rate are increasing and decisive action could very well cause the AUD to fall sharply in medium term. Clearly, as the risk of a rate rise increase, this is being reflected in the overall valuation of the AUD. So for obvious reasons, traders are keen to stay ahead of the information curve on this decision.

Finally, from a technical perspective, price action remains depressed and below the 100-Day moving average. RSI also continues to trend lower, within neutral territory, whilst price action manages to hang on above the critical 0.6905 support zone. Support is found at 0.6981, 0.6905, and 0.6755 whilst resistance is found at 0.7199, 0.7387, and 0.7535.

The coming week is likely to be critical for the AUD’s near term trend as the market digests the US labour market data. So keep a close watch on any potential breach of the 70 cent handle, as movement below this level could signal further falls.