- AUD/USD has started out the week on the defensive, falling below the 0.71 handle to a low of 0.7067 as pressure mounts.
- AUD/USD is in the consolidation of the recent sell-off, supported at the 38.2% Fibo level of the YTD range.
AUD/USD has been in supply following the RBA’s move to neutral while the greenback remains robust despite the Fed’s switch in tone. The futures markets are pricing very little chance of any further Fed rate hikes in this cycle, with just a 20% chance of a cut by December. However, following the RBA slashing its growth forecasts while delaying the pickup in inflation outlook, the markets have removed hikes in Australia from projections as well.
“As the RBA has switched from glass-half-full to listing a litany of global and domestic downside risks to the economy, we drop our November hike and pencil in a 1.75% cash rate for May 2020. We attach a 33% risk of a rate cut, but this risk is expected to amortize over time as subsequent data reports support a return to trend growth and higher inflation over time,” analysts at TD Securities explained.
For the week ahead, the RBNZ will be in focus and is likely to be the next central bank to join a unison of neutral outlooks, while locally, business conditions and confidence will be key. “The December report saw a collapse in business conditions from +11 to +2 via corrections in trading, profits and employment. Will this January report see a rebound or signal a deeper malaise for 2019? Further weakness into the contraction zone will inflame already red-hot expectations for a rate cut by year-end and could push AUD below $US0.70,” analysts at TD Securities explained.
AUD/USD levels
Valeria Bednarik, Chief Analyst at FXStreet explained that the daily chart indicates that the decline could continue these upcoming days:
“Technical indicators resumed their slides on Friday now at levels last seen early January, while the price remains well below all of its moving averages, with the 20 and 100 DMA converging around 0.7170. In the 4 hours chart and for the shorter-term, the risk is also skewed to the downside, as the pair continues developing below a bearish 20 SMA, which crossed below the larger ones, while technical indicators lack directional strength, both in negative ground, the Momentum near its mid-line but the RSI closer to oversold readings, indicating the absence of buying interest.”
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