AUD/USD: Recovery dubious, still scope for the 0.6857/78.6% retracement

The AUD/USD pair hit a two-month low following news that the economy only grew by 2.30% in December 2018 vs expectations of 2.80% that were greatly missed; This was also its weakest pace since June 2017, suggesting the Reserve Bank of Australia’s growth outlook of 3% in 2019 needs to come down, raising speculation that the RBA will cut interest rates this year that will now need to keep an eye on rising commodity prices. Meanwhile, AUD/USD had been testing the downside of the 0.70 handle following a series of downbeat data releases from China and domestically and this week looks set to continue on that theme:

Key data expectations 

"We expect this week's sentiment reports to be rather bearish. Tomorrow, the NAB business survey is expected to muddle along after soggy Dec/Jan prints, if not actually deteriorate further. A likely change of government is key here. Then on Wednesday, consumer sentiment is expected to slump on 'recession' talk," analysts at TD Securities explained. "Last week, Australian media obsessed over a per-capita GDP recession. While technically correct, households likely just heard the R-word. In December 2014, when news of a similar "income recession" was revealed, there was a subsequent 6% slump in consumer sentiment to 91.1. We pencil in a similar correction from 103.8 to 97 (with downside risk) for Wednesday."

AUD/USD positioning data

As for positioning, data for the week ending 5 March 2019 showed that leveraged funds were USD sellers for the second straight week, reducing their overall net long dollar positions. Dollar selling was seen across the major G10 currencies except for JPY. Commodity-FX reported net buying. But weaker-than-expected Australia GDP data and growing calls for RBA rate cuts could see the net AUD buying unwind the following week.

AUD/USD levels

While the pair may have broken the hourly cloud resistance and 6th with the confluence of 7th Match double tops at 0.7050, bears are still speaking up. "We look for further weakness to 0.6950, this is the 61.8% retracement of the move up from January 2019," analysts at Commerzbank argued:

"There is scope for the 0.6857/78.6% retracement. Rallies will find initial resistance at 0.7125 (55 day ma) and 0.7207 (end of February high) and are likely to remain capped by the 0.7237 200 day ma. Price action in January was exhaustive – the market charted a hammer (reversal). This suggests the down move ended at 0.6738."