AUD/USD clings to 0.6720 ahead of Australia data/RBA, trade/political pessimism prevail

With key data/events scheduled for publishing, coupled with no major updates off-late, the AUD/USD pair remains modestly changed to 0.6720 during early Asian session on Tuesday.

On Monday, the Aussie pair failed to cheer upbeat prints of China’s private manufacturing activity gauge as mixed catalysts at home and the on-going US-China trade war exerted downside pressure on the pair. Adding to the sentiment was prolonged protests in Hong Kong that is on the brink of witnessing Chinese intervention, which in turn will raise hurdles at the trade front as the US has previously warned Beijing to not go for it.

Market sentiment was also downbeat with the US tariffs getting into effect at the start of the September with no clues as to when the US-China trade talks will be held, the reason for China the dragon nation stayed away from immediately retaliating the US levies.

Global risk tone remained under pressure, despite the US and Canadian markets’ close, as downbeat activity numbers from the EU and the UK, coupled with British political plays, kept disturbing the market flow.

Moving on, Australia’s second quarter (Q2) Current Account Balance, 1.4B expected versus -2.9B prior, and July month’s seasonally adjusted (s.a.) Retail Sales, forecast 0.2% against 0.4% earlier, are in the stoplight ahead of the Reserve Bank of Australia’s (RBA) monetary policy meeting. Even if the central bank isn’t expected to alter present monetary policy, chances are high that it will hold bearish bias towards future moves and keep the Aussie under pressure.

TD securities follows most market consensus while saying, “A higher trade surplus and lower net income deficit should drive the current account into surplus for the first time in nearly 50 years to the tune of A$1.7b. We forecast Q2 net exports to increase 0.4%, thanks to strong commodity exports. Q2 GDP puzzle pieces aside we have July retail sales increasing 0.2%/m, placing annual growth at 2.8%. With tax cut proceeds expected to hit bank accounts from 16th July, this poses an upside risk to our forecast. As for the RBA, the Bank is likely to keep the cash rate on hold at 1%. We expect the Bank to reiterate it is in 'wait and see' mode as it assesses the impact of tax cuts, rate cuts and easing in macro-prudential policy since May. A soft GDP on Wed could see the market bring forward a RBA cut to Oct.”

Technical Analysis

A rising trend-line stretched since early-August offers immediate support around 0.6695 ahead of highlighting August month low near 0.6677. On the upside, a week-old falling trend-line at 0.6725, followed by 21-day exponential moving average (EMA) level of 0.6772, seem nearby key resistances.