AUD/USD: Contained on 0.69 handle in bear’s market ahead of key event risks this week

• AUD/USD is in the hand’s of the bears ahead of key events.
• GDP,  US-China talks, Aussie CPI and the Fed are all on tap.  

AUD/USD is currently trading at 0.6910, contained in a tight range at the start of the week. There is very little to go on initially, but its a big week for markets with plenty going on. Last  week ended with a solid  US Q2 Gross Domestic Product  report that was better than expected and the US Dollar firmed with AUD breaching month-lows. The major risk for the week is where  a 25bp cut is expected by the Federal Reserve.

“We expect the FOMC to deliver its first rate cut in over ten years, with a  25bp reduction in the Fed Funds target range. Given crosscurrents persist as a threat for the outlook and inflation remains subdued, we look for the Fed to leave the door open to further easing. We expect the statement to show modest, mark-to-market changes and for two of the FOMC voters to dissent,” analysts at TD Securities argued.

Clashing with the event will be a resumption of US-China talks which provides another potential risk catalyst. However, risks are balanced to the downside as market’s cannot shake off the pessimism considering the tall order of breaking the deadlock of the two side’s demands.  Bloomberg ran a weekend article which noted that China’s sticking to its three key demands: “The immediate removal of all existing tariffs, a balanced agreement, and realistic targets for additional Chinese purchases of American products.” The article also outlined the U.S. requirements. “Among the U.S.’s demands are structural reforms to China’s economy, greater protection of intellectual property rights and a more balanced trading relationship. Secretary of Commerce Wilbur Ross on Tuesday said Trump’s objective is to get “a proper deal.”

Treasuries rallied late in the session, unwinding initial losses following the GDP report. All focus this week will be the Australian Consumer Price Index  print. “Rising oil prices over the qtr are the main driver for higher headline CPI. A pick-up in annual private health premiums, rising airfares and the increase in tobacco excise suggest risks to the upside. Core inflation at 0.4% q/q is consistent with the RBA’s forecasts so few implications from this forecast,” the analysts at TD Securities explained.  

AUD/USD levels:

Valeria Bednarik, the Chief analyst at FXStreet explained that the AUD/USD pair has settled at its lowest since June 21, and maintains a firmly bearish stance, according to technical readings in the daily chart:

“It has now developed below all of its moving averages, and with the 20 DMA gaining strength downward below the larger ones. The Momentum indicator heads lower below its 100 level, while the RSI accelerated its slump, heading sharply south at around 39. In the 4 hours chart, the 20 SMA crossed below the larger ones, keeping a firm bearish slope, while technical indicators have stabilized at extreme oversold levels, rather reflecting the lack of volume at the end of the week than suggesting downward exhaustion. A break below 0.6880, the immediate support, should anticipate a continued slide toward the 0.6820 price zone.”