In the previous AUD/USD weekly forecast, we observed a failure of the currency pair to gain a foothold above 0.7050. Bearish pressure then reemerged as expected and sent the price action down to the 0.68 – 0.79 region. Further bearish momentum if any would likely test the lower bollinger band followed by 0.68.
We observed dovish comments from the Reserve Bank of Australia, sparkling speculation of further rate cuts or quantitative easing. The US reported better than expected economic figures and this would likely increase positive sentiment for the US Dollar.
Looking at the AUD/USD weekly chart above, we observe an attempt to breach 0.68. This is as per our previous forecast for continued bearish momentum. We absolutely love it when our forecasts are spot on! Having said so, as always we will like to caution that nothing in forex is 100%. If someone says they have a 100% forecast, they probably have a magical crystal ball! :p
The 0.68 region is an important technical support and sentiment region. If the currency pair manages to maintain a foothold below 0.68, we may be seeing the path open up for 0.66. The level of the AUD/USD now was last seen during the storm of the 2008 financial crisis ( excluding the flash plunge late 2018 ).
If bullish pressure pushes for a recovery, the immediate resistances are 0.692 and the important technical resistance and sentiment region of 0.7.
America First Trade War
US President Donald Trump commented that the US will impose an additional 10% tariffs on $300 billion worth of Chinese imports from 1st September. This is in addition to the existing 25% tariffs on $250 billion. In fact the President mentioned that tariffs could go well beyond 25%.
A number of analysts are concerned with the potential trade fallout. Some have warned that China is unlikely to back down and will instead retaliate with their own measures. This may lead to an extremely unfavorable economic situation.
China is Australia’s biggest trading partner, accounting for much of the commodities export. Any economic challenges affecting China will likely have a spill over effect on the Australian economic. The Australian dollar had likely lost value due to the perceived economic fallout. Investors are apprehensive that the Australian economy may be increasingly strained.
US Federal Reserve Cuts
The Federal Funds Rate was reduced by 0.25%, and is currently now at 2.25%. While investors usually favor an asset with a higher interest rate, the impact on the US dollar appeared to be opposite. The likely reason to this is that the market was predicting a number of cuts to the interest rate. When the US Federal Reserve Chairman Jerome Powell mentioned that the cut was a “mid-cycle adjustment”, US dollar investors may be relieved at the possibility that this may be the only cut, resulting in the US dollar gaining strength.
Week ahead
There are many economic releases due in the week ahead and it is important to be aware. We need to factor this into our trading plan so that we can lower the possibility of detrimental surprises.
USA ISM Non-Manufacturing PMI
The 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.
AUS Cash Rate
AUS RBA Rate Statement
Interest rate related statements are given much attention by analysts and investors as it has a direct impact on the currency. Investors usually analyse these statements thoroughly for insights on the interest rate policy.
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 Member Bullard Speech
AUS RBA Assist Gov Bullock Speech
AUS RBA Gov Lowe Speech
Speeches may contain a question and answer segment that at times go into unscripted topics and result in unexpected developments and volatility.
AUS RBA Monetary Policy Statement
Monetary policy statements are given much attention by analysts and investors as it has an impact on the economy. The statements will be analysed thoroughly for insights on the economic policy ahead.
CNY 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.
USA Core PPI
USA PPI
The Producer Price Index is important because the price of goods sold by producers influences the downstream impact of inflation. If inflation is high, a central bank may increase interest rate to mitigate the situation.
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. The latest premium analysis and our popular Price Action Bias Signals are now available too.
The Economic Fundamentals Center has been updated with the latest data. You can also download the Android App version.
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