AUD/USD Weekly Forecast 26 Aug 19


In the previous AUD/USD weekly forecast, we noted that the week ended as a doji again. This could be an indication of a significant amount of apprehension as traders were undecided between long and short positions. An important point to note was that the AUD/USD did not manage to end the trading week above 0.68. This likely meant that there could be a slight bias towards the downside.

If the bearish momentum continued, 0.67 would likely be the next target.

It appeared that the US China trade war had no end in sight. China mentioned that the US decision to impose additional tariffs on certain Chinese imports is a violation of the agreement that was reached by both sides at the G20 summit in Osaka. They further commented that they would take countermeasures. These developments probably flooded the market with risk aversion. A number of financial bodies were warning of the impact of the protracted trade war.

A number of significant US economic data was reported to be better than expected. While the Australian employment change data came out much better than expected, it did little to provide uplift for the battered Australian Dollar.

Looking at the AUD/USD weekly chart above, as mentioned in our previous forecast, we did see an attempt by the bearish momentum to take 0.67. It had since eased off and ended the week around the midway mark.

It is important to understand that the currency pair failed to regain the 0.68 region again. As the time the AUD/USD remains in the sub 0.68 increases, we may see downside momentum build up as traders switch positions. Should 0.67 fail in the coming week. we are likely to see an attempt on 0.66.

Any bullish recovery will need to firmly establish a foothold above 0.68 before moving on to 0.69.

US China Trade War Deepening

After the latest move by the US to add to the tariffs, China announced plans to increase duties by 5% – 10% on more than 5,000 US products. It will also revive a 25% tariff on US car imports. The new plans will impact around $75 billion of US goods.

Not to be outdone, President Trump then announced a plan to increase the tariff on around $250 billion of Chinese goods from 25% to 30%. He also made a revision of an upcoming tariff on around $300 billion of Chinese goods from 10% to 15%.

It was also reported that he had asked US companies to look for alternatives beside Chinese goods.

China is a major trading partner for Australia and as such, challenges to the Chinese economy often result in significant impact to the Australian economy. The trade war is taking it’s toil on China and the outlook is likely bleak.

Outlook Darkening

The Commonwealth Bank of Australia, CBA released a new forecast reflecting the expectation that the Australian Dollar will not recover by the end of the year. This forecast joins a number of others that are expecting a bearish situation. In the recent Reserve Bank of Australia minutes, it stated ” Board reviewed experience of developed nations with unconventional monetary policy “. There is speculation that the RBA may be considering quantitative easing measures. These measures usually results in increased liquidity, adding downside pressure to the currency.

The Week Ahead

USA Core Durable Goods Orders
USA Durable Goods Orders
Reports on the orders of goods are leading indicators of production and thus the level of economic activities. Increasing purchase orders suggests that manufacturers will increase activity to meet the demand, providing downstream benefits such as employment. On the other hand, decreasing orders may indicate an upcoming economic crunch.

USA FOMC Member Bullard Speech
AUS RBA Deputy Gov Debelle Speech
Speeches may reveal new insights to economic policies or contain a question and answer segment that at times go into unscripted topics resulting in unexpected developments and volatility.

USA CB Consumer Confidence
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.

USA Richmond 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.

AUS Construction Work Done
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.

AUS Private Capital Expenditure
Business spending serves as a leading indicator of economic activity. If spending is high, downstream activities such as employment may rise. On the other hand if spending drops, it will be an indicator of a challenging economic climate.

USA Preliminary GDP
Gross domestic product is a measure of the monetary market value of all the goods and services produced. It is an overall measure of economic activity and health and thus wields influence on the home currency.

AUS Building Approvals
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 Personal Spending
While Personal Spending is similar to Retail Sales, it focuses on consumers. It is a fundamental component of the economy because as consumers spend, it translates to revenue and flows up stream as salaries, wholesales purchase, production orders and so on.

USA Core PCE Price Index
While the Personal Consumption Expenditures index is similar to Consumer Price Index, it focuses on individuals. It is a component of inflation and if inflation is high, a central bank may increase interest rate to mitigate the situation.

USA Chicago PMI
Purchasing Managers’ Index is a survey of purchasing managers and is important as the sentiment of purchasing managers 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.

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.

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