- AUD/USD had been supported by sentiment last week that the RBA may in fact hold rates next week.
- Tensions between the US and China are unlikely to be fully resolved anytime soon and headwinds to growth to remain substantial.
AUD/IUSD has started to stabilise in the mid 0.67 handle having fallen from a high of over 0.6780 in recent trade to a low of 0.6746. AUD/USD now depends on the Reserve Bank of Australia's next move, with the market expecting a rate cut next week.
AUD/USD had been supported by sentiment last week that the RBA may in fact hold rates next week following RBA's governor Lowe’s speech when he said “a gentle turning point has been reached” for Australia’s economy. However, in, later in the same speech, Lowe added that, “While we are at a gentle turning point and expect growth to pick up, the strength and durability of this pick-up remains to be seen.”
RBA: Downward pressure on global interest rates could not be ignored
In addition, there was an emphasis on stalling of wages growth and he made clear that the downward pressure on global interest rates could not be ignored, as analysts at Westpac pointed out:
"We are comfortable with our long-held call for the RBA to cut the cash rate to 0.75% on Tuesday. A rate cut is about 75% priced, so AUD/USD seems vulnerable to further decline."
On the trade front, optimism over talks between the US and China has been driving global stocks higher for much of the past month - On Wednesday, Trump said a deal with China “could happen sooner than you think, ”but tensions between the US and China are unlikely to be fully resolved anytime soon and headwinds to growth to remain substantial.
AUD/USD levels
"We need to see a sustained break over the 55-day moving average at 0.6837 to retarget the 0.6894 mid September high," analysts at Commerzbank argued.
"We look for the market to find near term support down to the 0.6736 August 14 low. Major support comes in between the August and current September lows at 0.6691/78. Failure here would suggest the resumption of a downtrend with the .06548 February 1999 high being in focus. Above 0.6894 sits the July 10 low at 0.6911. Were it to be exceeded, the 2019 downtrend at .6982 and the 200-day ma at 0.6998 would be next in line."
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