In the previous AUD/USD forecast, we saw a bullish recovery of the currency pair. The 0.68 region was tested and the currency pair managed to end the week above it. This was a significant situation as the AUD/USD had not held above 0.68 for the past month. If the bullish recovery continued in the coming week, the currency pair would need to overcome the resistance at 0.69 and the middle bollinger band before moving higher.
The maintaining of interest rate by the Reserve Bank of Australia and an interest rate statement which was mostly within expectation gave little for any continuation of bearish pressure. China reported positive economic data and provided some uplift to the sentiment towards the Australian dollar. On the other hand, the US released a number of weak economic data.
Looking at the AUD/USD weekly chart above we note that the week was bullish. As per our previous forecast, the ability to hold the 0.68 region last week did pave the way for more bullish momentum. Our bollinger bands remain a source of considerable influence. As expected, the AUD/USD tested the middle bollinger but had since eased towards the downside as upside momentum fizzled.
A continuation of the bullish momentum will need to overcome the middle bollinger band and 0.69 before heading for a test of 0.7.
A return of bearish pressure will send the currency pair towards a test of the significant sentiment and technical region of 0.68.
US China Trade War Relief
The week brought about a break in escalating tension between the US and China. China announced an exemption of 16 US products from new tariffs until September 2020. US President Trump also eased the situation by holding off a 5% increase in tariffs for two weeks. It was initially scheduled to start on 1st October. This is likely seen as a gesture of goodwill as China celebrates it’s 70th founding anniversary next month. These developments are likely to create a more conducive climate for the negotiating teams that are scheduled to meet in October.
In view of the positive developments, risk appetite has picked up in the markets. This results in traders seeking riskier assets such as the Australian dollar. With this in mind, we have to be mindful of the fact that the short term price action of the AUD/USD will likely be sentimental in nature. Sentiment can change quickly and hence it is crucial that the shorter time frames are monitored.
The Week Ahead
We are expecting a number of high impact economic events.
AUS Monetary Policy Meeting Minutes
Monetary policy meeting minutes are given much attention by analysts and investors as it has an impact on the economy. The minutes will be analysed thoroughly for insights on the economic policy ahead. Significant volatility may be generated if there are unexpected revelations.
The House Price Index gives insights into the housing industry’s health. If house prices are rising, it will attract investors and result in economic activity.
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 Crude Oil Inventories
Movement of oil supply may bring insights to the level of general economic activities. For example, an increasing supply may suggest excessive production or diminishing demand. A reducing supply on the other hand may suggest an economic pick up.
USA FOMC Economic Projections
USA FOMC Statement
Interest rate and economy related statements are given much attention by analysts and investors as it has a direct impact on the currency. Investors usually favor a currency with a higher interest rate and will analyse these statements thoroughly for insights on the interest rate policy.
USA Federal Funds Rate
A high interest usually generates demand while a low interest may result in dumping of the currency for better yielding alternatives. Therefore the interest rate result usually has a significant impact, especially when it is an unexpected result.
USA FOMC Press Conference
Press conferences may go into unscripted territory during the Question and Answer segment and hence may spur 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 Philly Fed Manufacturing Index
This survey of manufacturers is important as the sentiment of businesses is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well and with the activities of the businesses, downstream benefits will happen such as employment and investment.
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.
Traders should always practice proper money management and seek to understand the underlying tones for the market.