AUD/USD: bulls hang in there while bears look for a test below 0.7400 ahead of RBA minutes

AUD/USD is holding in consolidation on the 0.74 handle after meeting highs of 0.7442 in a positive start to the week in Asia. However, the dollar has flexed its muscles on Monday with strong revisions to US retail sales that will bode well for GDP, sending the Aussie back to a low of 0.7408 that has held, so far. 

AUD/USD has been subject to a turn in commodity prices of late, with bulls losing sight of the 0.74 handle, ( 0.7483 9th July high). Australia’s export basket is at a one-month low and copper has been a major culprit with a steep decline that commenced in June, capping the Aussie's attempt of a break out of the rising channel's resistance on the daily chart at 0.7680.  Of course, much of this was due to rising tensions in trade conflicts between the US and China, denting the goldilocks recovery in the commodity sector. 

However, the Aussie has found some traction again on receding fears from investors which had fulled a carry trade back into the Aussie as risk sentiment improved last week while markets do not seem as concerned about a full-fledged trading war breaking out. Indeed, AUD outperformed last week and it remains bid on the crosses.  Investors are instead more concentrated on earnings season again and indeed, positive economic data. 

For the time being, it as if the market is short the Aussie as dips keep getting bought as we head over to the RBA minutes later tonight and despite a miss in yesterday's Chinese June IP at +6.0% that missed expectations - (China GDP came in at 6.7% as expected) and today's US retail sales impressive revisions. (US retail sales came as 0.05%, in line with 0.5% expectations vs the prior +0.8% that was revised to +1.3%. The US Empire manufacturing index for July was also a beat, arriving at 22.6 vs 21.0 expected).

RBA minutes

For some additional background to the Aussie's price performance of late needs to include the RBA factor. Analysts at UOB Group explained that The Reserve Bank of Australia (RBA) has remained stubbornly neutral as inflation trajectory in Australia stayed benign:

"This resulted in further deterioration of the 10 yield spread against the AUD as the US Federal Reserve continued to hike. As such, the sell-off in commodities prices coupled with deteriorating yield spread weighed on the AUD. Overall, AUD/USD was sold back down heavily from above 0.80 at the start of the year to under 0.74."

For today, we will have the RBA minutes from July's meeting. As per usual, traders will be looking out for comments surrounding the value of the Aussie, trade tensions and subsequent headwinds for the economy and short-term funding markets, all of which could have an impact o the value of the Aussie tonight. 

The analysts at UOB Group argue that after falling nearly 8% across the first half of the year, valuation in the AUD is starting to get attractive once again:

"As such, we maintain our positive view on AUD/USD and see a rebound back to 0.78 by end of this year and 0.80 by mid-19."

AUD/USD levels

Bulls still need to get above the downtrend at 0.7590 to avert further downward pressures. However, a shorter term the price builds higher daily highs above the descending channel and daily MAs are turning positive with a bullish 10/21-D SMA crossover.

Further out, however, technicals still lean bearish. The RSIs are biased down on a longer-term basis where 0.7300/20 comes in as a key target. The monthly doji candle had also formed recently, also suggesting the downside is vulnerable. (Should the trade war spat angst starts to become a more dominant theme and a complete unwind of the two-year year-long reflation trade would keep the downside open towards the 0.72 handle. Below there comes the 0.7110/70 support zone).