- AUD/USD hangs in the balance of major risk events for the week ahead.
- AUD/USD bears in control, hoping for a hawkish cut from the Fed.
AUD/USD has been licking its wounds following a 2.6% drop from the prior swing highs up in the 0.7080s as markets get set for more of the same from the Reserve Bank of Australia and the Australian economy while presuming that the U.S. the economy can hold up better to potential adverse geopolitical and global economic conditions. Indeed, the slightly better than expected Consumer Price Index, solid jobs performance and Friday’s stronger-than-expected US GDP data has all been taken positively by US markets.
The US Q2 GDP was better than expected, rising 2.1% annualised, seasonally adjusted following Q1’s 3.1% gain. Private consumption rose 4.3% and the GDP price index was up 2.4%. Personal spending on durable goods also rose 12.9% and on non-durables +6.0%. This all points towards a hawkish cut on Wednesday by the Federal Reserve which leave it streaks ahead of its counterparties, such as the European Central bank, PBoC and the antipodean central banks. However, a cut is likely nonetheless, especially given the weak investment is an area of concern for the Fed, alongside the weak global environment – Exports fell 5.0% in Q2 and imports were stable (+0.1%).
Sino/US trade war noise is a risk this week
Global trade will be a major concern for the Federal Open Market Committee this week of which their two-day meeting starting tomorrow will clash with that of U.S. and Chinese trade negotiators collaborating in a two-day meeting in Shanghai this week for their first in-person talks since a G20 truce last month. However, where there is a slight chance of “goodwill” gestures and a clearer path for future negotiations, with the U.S. presidential elections in 2020, many expect that the Chinese will want to wait and see how those pan out, hoping that a new President would be elected.
FOMC to conclude in a prolonged downside trend for AUD/USD?
However, the immediate risk does stay with the Fed this week and should the Dollar find traction on the notion that recent domestic will make it too difficult to justify an outlook of sustained interest rate reductions by the FOMC, the recent downside could be the start of a prolonged bear trend for AUD/USD.
AUD/USD levels
Analysts at Commerzbank explained that AUD/USD sold off last week from a very tough band of resistance, namely 0.7065/8:
“This is the location of the 200-day ma and the 8-month downtrend. The market has eroded the 55-day ma at 0.6955, and near term uptrend and hence starts this week on the defensive. We look for losses to the support at 0.6865/55 the 17th May low and 2019 uptrend. This protects the mid-June low at 0.6832. Below 0.6832 will target the 0.6738 January 2019 low and 0.6725, the 2016-2019 support line (connects the lows).”
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