AUD/USD: Bears waiting to pounce when price gets below critical support

• AUD/USD awaits the RBA and Fed themes from the Jackson Hole.
• AUD/USD testing critical support but lack of follow-through.

AUD/USD is still not below the trendlines on the August chart painted following a series of higher daily lows, but the pair is testing the vicinity as the Chinese Yuan softens a touch as we head over the G7 and the Jackson Hole risks over the next few days.  

AUD/USD is currently trading at 0.6755, just off the lows of 0.6745 and below the 0.6762 following a soft session overnight with the CNY hitting a fresh low since 2008 against USD. Something to monitor going into the forthcoming events will be the AU-US 10-year spread that narrowed to -65.8bp as the AU 10-year bonds outperformed the sell-off in UST-bills.  

Jackson Hole

We will hear from both the Reserve Bank of Australia and the Federal reserve heads shortly, and into the events, we know that the markets are pricing just 3bp of easing at the 3 September RBA meeting and 24bp of easing at the 19 September Fed meeting. These are based on and a terminal rate of 1.03% for the Fed (Fed funds rate currently 2.13%) and a terminal rate around 0.41% by July 2020 (RBA cash rate currently at 1.0%).

First, we will hear from Fed chair Powell delivering the keynote speech at the Kansas City Fed’s annual economic symposium at Jackson Hole, Wyoming. The theme is simply “Challenges for Monetary Policy.” He speaks at 10am NY time, midnight Sydney. Then, we hear from RBA Governor Lowe is scheduled to speak on a Saturday panel at 12:25pm ET (Sunday 2:25am AEST) – Speakers on this panel tend to speak on their country’s policy outlook, so there could be quite a lot at stake here, although,  neither of the species is expected to provide new insight on the policy outlooks. However, if the market hears a narrative that suggests a more realistic chance of a cut in September or October from either the Fed, the RBA, or both, we could see some action.  

“While the US economy can weather a prolonged period of weak business investment, a marked deterioration in consumption will quickly put at-trend GDP growth at risk. A pro-active decision to cut twice more past September however should provide enough stimulus to sustain discretionary incomes and confidence amongst consumers, and hence keep growth at trend,”

analysts at Westpac said.  

AUD/USD levels