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AUD/USD Forecast June 10-14 – Aussie shrugs off RBA rate cut, Fed rate comments weigh on greenback

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AUD/USD posted considerable gains last week. There are just four events in the upcoming week. Here is an outlook for the highlights and an updated technical analysis for AUD/USD.
As expected, the RBA lowered the benchmark rate by 25 basis points, to 1.25%. The Australian economy has been gripped by a slowdown due to weaker demand from China, but the RBA had resisted lowering rates. However, weaker economic conditions left the central bank no choice but to cut rates for the first time since August 2016. GDP was soft in Q1, with an annualized gain of 1.8%, well below the long-term average of 3.5%.
The greenback retreated after comments from senior Federal Reserve officials strongly hinted at a rate cut. In recent months, the Fed has presented a neutral stance regarding rate moves, but made a sharp U-turn last week in favor of an easing bias. On Tuesday, Fed chair Jerome Powell said that the Fed would “act as appropriate to sustain the expansion”, and analysts noted that he did not mention his “patient” approach to monetary policy, which has been a buzzword in Powell’s recent comments. Powell’s remarks echoed comments from James Bullard, president of the St. Louis Fed. Bullard stated that the Fed might have to lower rates shortly due to low inflation and the ongoing trade war with China. The week ended on a sour note for U.S. indicators, as employment numbers were soft. Nonfarm payrolls plunged to 75 thousand, down from 263 thousand a month earlier. Wage growth was unchanged at 0.2%, shy of the estimate of 0.3%.

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

https://www.tradingview.com/x/2zmaFut8/

  1. NAB Business Confidence: Tuesday, 1:30. Business confidence has been weak, with two straight releases of zero. Will we see any change in May?
  2. Westpac Consumer Sentiment: Wednesday, 0:30. Consumer confidence slowed to 0.6% in May, after a strong gain of 1.9% in the previous month. The markets are hoping for a rebound in the June release.
  3. MI Inflation Expectations: Thursday, 1:00. Inflation expectations often translate into actual inflation, making this Melbourne Institute indicator an important event. The indicator has been trending lower, and the 3.2% gain in April was the weakest reading since November 2016. Will the downward trend continue?
  4. Employment Data: Thursday, 1:30. The economy created 28.4 thousand jobs in April, after a gain of 25.7 thousand a month earlier. Both readings easily beat the estimate of 15.2 thousand. The estimate for May stands at 16.0 thousand. The unemployment rate rose to 5.2% in April, above the estimate of 5.0%. This was the highest reading since August. Unemployment is forecast to drop to 5.1% in May.

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.

0.7165 (mentioned last week) has held in resistance since early April.

0.7085 was a low point in September.

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

0.6825 supported the pair in late 2016 and early 2017.

0.6744 was a low point in January.

0.6686 was a cap back in January 2000.

0.6547 was an important resistance line back in December 2008.

I remain bearish on AUD/USD

The slowdown in China continues to dampen demand for Australian exports, and there is no end in sight to the bitter U.S.-China trade war. Trade tensions have weighed on risk appetite, and the threat of U.S. tariffs on Mexico could raise risk apprehension even further and hurt risk currencies like the Australian dollar.

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AUD/USD forecast and technical analysis ► preview of the major events that will move the Australian Dollar (A$) in the upcoming week.  Here are some general data. Scroll down for the latest AUD/USD outlook

Aussie/USD characteristics

The Aussie is a “risk-on” currency. It usually rises when commodities and stocks advance and when the risk appetite improves. Its fate deteriorates when the markets are in “risk aversion” mode: geopolitical worries increase and the outlook for global demand is sluggish.

The Aussie’s technical behavior is usually admirable. This implies respecting lines of resistance and support, diagonal trend lines, etc. AUD/USD has become more popular for techies in recent years, even after the financial crisis which brought the famous “carry trade.” to a halt.

Australia exports metals such as copper and iron. We often find a positive correlation between the price of iron ore and the Aussie $. The mining boom kept Australia out of recession for over 25 years. The land down under enjoyed the high resources demand with China playing a key role. While peak investment is probably behind us, the sector still churns out quite a lot of raw materials, as China has a soft landing.

AUD/USD Recent Moves

The Reserve Bank of Australia clarified it will not change interest rates anytime soon, but they tend to lean to cutting rates. This is due to low inflation. The labor market was looking good early in the year but now looks more complicated.

Risks could arise from the Chinese economy: Australia’s No. 1 trading partner could see a slowdown after the Party Congress in October 2017. So far, things look stable, but 2018 could be different.

Latest weekly AUD/USD forecast

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