AUD/USD Weekly Forecast 12 Aug 19

In the previous AUD/USD forecast, we noted an attempt to breach 0.68.

It is an important technical support and sentiment region. Close observation was required as should the currency pair manage to maintain a foothold below 0.68, we might be seeing a push for 0.66.

When the US President Donald Trump commented that the US would impose an additional 10% tariffs on $300 billion worth of Chinese imports from 1st September, sentiments were affected. China is Australia’s biggest trading partner and accounts for much of the commodities export. If China’s economy is affected by challenges, it is likely that it would result as a challenge for Australia too.

While the Federal Funds Rate was reduced by 0.25%, the US dollar unexpectedly strengthened. Investors usually favor an asset with a higher interest rate. It was likely because while the market was predicting a number of cuts to the interest rate, the US Federal Reserve Chairman Jerome Powell mentioned that the cut was a “mid-cycle adjustment”. US dollar investors were probably relieved at the possibility that it might be the only cut, resulting in the US dollar gaining strength.

Technical Analysis

Looking at the AUD/USD weekly chart above we note that the currency pair ended the week as a doji. It is important to understand that while as mentioned, the foothold below 0.68 inspired a push for the 0.66 region, it has since eased back towards 0.68. This suggests a significant bullish resistance towards the downside momentum. This neutral outcome is aligned to our Price Action Bias Signals for the week. All currency pairs in our coverage were showing a neutral positioning.

A bullish return will see the currency pair target the 0.68 resistance followed by 0.70. The middle bollinger band is also in the vicinity of 0.7 and may add to the resistance effort..

A resumption of downside pressure will probably result in a push for 0.67 again.

Negative Sentiments Aplenty

The start of the week saw continued apprehension towards the US and China trade war. Conflicting developments continue to affect sentiment as more tariff were imposed while talks were underway. There were also claims by the US of China engaging in currency manipulation. Due to the significant role China plays in Australia’s economy, Australia remains a hostage to these developments. The IMF has commented that the ongoing trade war has inevitably affected the Chinese economy.

The Reserve Bank of New Zealand has cut its cash rate, something many analysts had expected. Having said so, surprise came in the form of a deeper than expected cut. 50 basis points were cut instead of the expected 25. This brings the interest rate from 1.5% to 1%. There were speculations that the Reserve Bank of Australia may follow.

Subtle Optimism Brings Relief

Reserve Bank Governor Philip Lowe mentioned that he is prepared to introduce more easing by reducing Australia’s interest rates further if required. Having said so he also brought across a sense that the Australian economy could be through the worst of its challenges. He spoke of signals showing that a gentle turning point has been met and he also expects the Gross Domestic Product figures to strengthen. Coming from a RBA official, this likely brought significant positive sentiment as investors are more at ease regarding any further interest rate cut.

The Week Ahead

There are numerous economic events in the week ahead. It is important to monitor the outcomes and assess if they are of a positive or negative sentiment to the  currency. Price action in the shorter time frames are usually sentiment based.

AUS RBA Assist Gov Kent Speech
Speeches may contain a question and answer segment that at times go into unscripted topics and result in unexpected developments and volatility.

AUS NAB Business Confidence
Business surveys are influential as the sentiment of businesses is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well while a cautious sentiment may see less business activities due to prudence.

USA CPI
USA Core CPI
Consumer Price Index is important because the price of consumer goods is a significant component of inflation. If inflation is high, a central bank may increase interest rate to mitigate the situation.

AUS Westpac Consumer Sentiment
Consumer surveys are influential as the sentiment of consumers is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well and hence consumers are confident. This likely leads to increased retail sales. A cautious sentiment on the other hand may see consumers spend less in view of a perceived upcoming economic crisis.

AUS Wage Price Index
Consumer earnings is important due to it’s upstream impact. With more earnings comes possible increased consumer spending. This translates to revenues, leading to employment and business expansion.

AUS RBA Assist Gov Debelle Speech
Speeches may contain a question and answer segment that at times go into unscripted topics and result in unexpected developments and volatility.

AUS Employment Change
AUS Unemployment Rate
Employment is a fundamental component of the economy as it leads to consumer spending and hence retail sales. A low unemployment rate is an indicator of a healthy functioning economy.

USA Core Retail Sales
USA Retail Sales
Retail sales is a fundamental component of the economy. As consumers spend, it translates to revenue and flows up stream as salaries, wholesales purchase, production orders and so on.

USA Philly Fed Manufacturing Index
Business surveys are influential as the sentiment of businesses is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well while a cautious sentiment may see less business activities due to prudence.

USA Building Permits
The construction of a building generates many economic activities. Jobs will be created for construction workers, the various sub contractors and services associated with new buildings such as power, water, furniture and so on.

USA  Preliminary UoM Consumer Sentiment
Consumer surveys are influential as the sentiment of consumers is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well and hence consumers are confident. This likely leads to increased retail sales. A cautious sentiment on the other hand may see consumers spend less in view of a perceived upcoming economic crisis.

There are many more events and hence it is important to follow an economic calendar. By doing so, you can reduce the possibility of an unexpected development affecting your trading plan.

Members can log in to their dashboards for an economic calendar.

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Traders should always practice proper money management and seek to understand the underlying tones for the market.

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