AUD/USD Forecast May 27-31 – Aussie rebounds but trade tension clouds remains

AUD/USD recovered last week, climbing close to 1.0%. There are four events in the upcoming week. Here is an outlook for the highlights of this week and an updated technical analysis for AUD/USD.

The RBA has been under pressure to cut interest rates, as the Australian economy has been hurt by weak global demand, in particular the slowdown which has gripped China. The minutes of the May meeting were dovish, raising the likelihood of a rate cut at the June policy meeting. The minutes discussed the “uncertainties” regarding the bank’s inflation target of 2.0%. As well, policymakers dropped a reference to “not a strong case” for a rate move in the near future, which appears to be a bias in favor of easing. RBA Governor Lowe spoke on Tuesday and the message was even clearer. Lowe stated that a “decrease in the cash rate would likely be appropriate.”  The markets responded by pricing in a June rate cut at 91%, so the Aussie could face further headwinds as investors look for more attractive alternatives.

The Aussie started the week with gains, receiving an unexpected boost from the general election results. Prime Minister Scott Morrison’s conservatives had been widely expected to lose to the center-left Liberals. Morrison had trailed badly in the polls throughout the campaign, but came from behind in stunning fashion to pull off the victory. The markets reacted favorably to the election results, and AUD/USD climbed as high as 1.0% on Monday.

Trade tensions between the U.S. and China escalated last week. Last week, the Trump administration announced it was imposing trade sanctions on the Chinese telecom giant Huawei. However, the U.S. Commerce Department then took a step back, saying that it would provide 3-month exemptions to U.S. companies that sell to Huawei. The tussle over Huawei has exacerbated the trade war between the two economic giants, and risk appetite will likely remain soft until the sides resume negotiations.

AUD/USD daily graph with support and resistance lines on it. Click to enlarge:

  1. Building Approvals: Thursday, 1:30. Building Approvals continues to show sharp swings. In March, the indicator plunged 15.5%, worse than the estimate of -12.5%. Better news is expected in April, with an estimate of 0.1%.
  2. Private Capital Expenditure: Thursday, 1:30. After two declines, the indicator rebounded in the first quarter with a strong gain of 2.0%. This easily beat the estimate of 0.8%. A gain of 0.5% is projected for the Q2 release.
  3. Chinese Manufacturing PMI: Friday, 1:00. Chinese manufacturing continues to struggle, which has weighed on the Australian economy. Manufacturing PMI dipped to 50.1 in April, pointing to stagnation in the manufacturing sector. The PMI is expected to fall to 49.9, just below the 50-level which separates contraction from expansion.
  4. Private Sector Credit: Friday, 1:30. Borrowing levels have been steady, with two straight gains of 0.3%. No change is expected in the upcoming release.

*All times are GMT

AUD/USD Technical Analysis

Technical lines from top to bottom:

The round number of 0.74 was the high point reached at the wake of December. This is followed by 0.7340, which the pair breached in late November.

0.7240 separated ranges in September and in October.

0.7190 is next.

Close by, 0.7165 (mentioned last week) was a swing low after a recovery in mid-November.

0.7085 was a low point in September.

0.6988 marked the low point in April. It remained relevant throughout the week.

0.6825 supported the pair in late 2016 and early 2017.

0.6744 was a low point in January.

0.6686 was an important cap back in January 2000.

0.6547 was an important resistance line back in December 2008.

I remain bearish on AUD/USD

Sharp swings in risk sentiment have triggered volatility in the Australian dollar, a risk currency. There is no end in sight to the U.S-China trade war, with no talks scheduled. Investors remain nervous and this could bode badly for the Aussie.

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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