AUD/USD: Downward trend in full swing—immediate target is 0.6510
August 4, 2023 1:24 pm
The AUD/USD currency pair hit a two-month price low yesterday, marking at 0.6517. The downward price dynamics of the pair is due to the simultaneous strengthening of the greenback and the weakening of the Aussie, which reacted unfavorably to the outcomes of the August RBA meeting. This situation allowed AUD/USD bears to consolidate around the 65-figure mark. The pair was confidently heading towards the main support level at 0.6510 (the lower line of the Bollinger Bands indicator on the W1 timeframe), breaking which would open the way for sellers towards the 63–64 figures area. However, after surpassing the price barrier at 0.6530 (the lower line of the Bollinger Bands on the daily chart), the downward momentum began to fade: traders were not willing to hold short positions around the two-month price lows ahead of the Nonfarm Payrolls release.
Nevertheless, the sentiment regarding the pair remains bearish. It is not possible to rule out a repeat “downward move” towards the support level at 0.6510—such a scenario is quite probable, considering the established fundamental background.
RBA dealt a blow to the Aussie
The trigger for the massive decline in AUD/USD price was the August meeting of the Reserve Bank of Australia. Most experts forecasted a 25-basis-point increase in the interest rate, but the regulator decided to maintain the status quo, stating that previous decisions to tighten monetary policy contributed to cooling down demand. At the same time, the central bank once again warned that further “some tightening of monetary policy” might be necessary to restrain inflation. The Central Bank made a similar statement during the July meeting (when the RBA also left the rate unchanged), but this time, it did not affect AUD/USD traders. The warning about another (possible) round of rate hikes, so to speak, became more formalized and acquired a routine character.
However, according to some experts, the Reserve Bank may, indeed, resort to an additional rate increase. In particular, analysts at ING suggested that the RBA will take another step towards tightening monetary policy at one of the autumn meetings—in September or October. However, experts associate this decision with the dynamics of inflation growth, whereas the latest inflation growth data reflected a downward movement in key indicators. For example, the Consumer Price Index reached 5.4% in June (a yearly minimum). In the second quarter, the CPI slowed down to 0.8% (forecasted to drop to 1.0% after rising by 1.4% in the first quarter), the slowest growth rate since 2021. If inflation indicators demonstrate a similar trend in July, the probability of a rate hike in September will be minimal.
Economic Cooling
It should be noted that the Reserve Bank of Australia (RBA) has been expressing increasing concern about the cooling of the national economy lately. This is another argument in favor of the RBA maintaining a wait-and-see position at subsequent meetings. Last Friday, the regulator published its quarterly statement on monetary policy, in which it lowered its growth forecasts for the current year. The GDP forecast for the end of 2023 was 0.9%, for the end of the next year—1.6%, and for the end of 2025—2.3%. The inflation forecast was also revised downward. The forecast for China was similarly revised lower—the central bank recorded downward risks for export prices. According to a Caixin survey conducted by S&P Global, factory activity in China began to contract (for the first time in the last four months). The Purchasing Managers’ Index (PMI) in China’s manufacturing sector decreased to 49.2 points, although most experts predicted growth to 50.3.
Additional pressure on the Aussie came from Thursday’s retail sales data. Retail trade volume in June decreased by 0.8%—for the first time since December 2022, the indicator moved into negative territory. It was also reported that the trade balance surplus decreased to 11.321 million (compared to 11.791 million the previous month) against the forecast of 11.000 million. The release structure indicates that exports in June decreased by 2.0% after a 4% increase the past month. Imports fell by 4.0% after a 2% rise the previous month.
All the aforementioned fundamental factors put pressure on the Australian currency.
In turn, the U.S. dollar enjoyed increased demand as a safe haven asset this week after Fitch downgraded the long-term issuer default rating of the United States from AAA to AA+. Among the reasons for this decision were worsening budgetary indicators and rising government debt. In the wake of increased risk aversion sentiment, the greenback strengthened across the market.
AUD/USD bears have likely not exhausted their potential. If today’s Nonfarm Payrolls data comes out at least at the forecast level, the U.S. currency may make its presence felt again, including in the AUD/USD pair.
The technical analysis confirms the same. On all “higher” timeframes (from H4 and above), the pair is positioned between the middle and lower lines of the Bollinger Bands indicator, indicating a downside bias. On the D1 and W1 timeframes, the Ichimoku indicator has formed a bearish “Parade of Lines” signal. This signal also indicates bearish sentiments. The nearest significant support level is at the lower Bollinger Bands line on the weekly chart—at 0.6510.
The material has been provided by InstaForex Company – www.instaforex.com
The AUD/USD currency pair hit a two-month price low yesterday, marking at 0.6517. The downward price dynamics of the pair is due to the simultaneous strengthening of the greenback and the weakening of the Aussie, which reacted unfavorably to the outcomes of the August RBA meeting. This situation allowed AUD/USD bears to consolidate around the 65-figure mark. The pair was confidently heading towards the main support level at 0.6510 (the lower line of the Bollinger Bands indicator on the W1 timeframe), breaking which would open the way for sellers towards the 63–64 figures area. However, after surpassing the price barrier at 0.6530 (the lower line of the Bollinger Bands on the daily chart), the downward momentum began to fade: traders were not willing to hold short positions around the two-month price lows ahead of the Nonfarm Payrolls release.
Nevertheless, the sentiment regarding the pair remains bearish. It is not possible to rule out a repeat “downward move” towards the support level at 0.6510—such a scenario is quite probable, considering the established fundamental background.
RBA dealt a blow to the Aussie
The trigger for the massive decline in AUD/USD price was the August meeting of the Reserve Bank of Australia. Most experts forecasted a 25-basis-point increase in the interest rate, but the regulator decided to maintain the status quo, stating that previous decisions to tighten monetary policy contributed to cooling down demand. At the same time, the central bank once again warned that further “some tightening of monetary policy” might be necessary to restrain inflation. The Central Bank made a similar statement during the July meeting (when the RBA also left the rate unchanged), but this time, it did not affect AUD/USD traders. The warning about another (possible) round of rate hikes, so to speak, became more formalized and acquired a routine character.
However, according to some experts, the Reserve Bank may, indeed, resort to an additional rate increase. In particular, analysts at ING suggested that the RBA will take another step towards tightening monetary policy at one of the autumn meetings—in September or October. However, experts associate this decision with the dynamics of inflation growth, whereas the latest inflation growth data reflected a downward movement in key indicators. For example, the Consumer Price Index reached 5.4% in June (a yearly minimum). In the second quarter, the CPI slowed down to 0.8% (forecasted to drop to 1.0% after rising by 1.4% in the first quarter), the slowest growth rate since 2021. If inflation indicators demonstrate a similar trend in July, the probability of a rate hike in September will be minimal.
Economic Cooling
It should be noted that the Reserve Bank of Australia (RBA) has been expressing increasing concern about the cooling of the national economy lately. This is another argument in favor of the RBA maintaining a wait-and-see position at subsequent meetings. Last Friday, the regulator published its quarterly statement on monetary policy, in which it lowered its growth forecasts for the current year. The GDP forecast for the end of 2023 was 0.9%, for the end of the next year—1.6%, and for the end of 2025—2.3%. The inflation forecast was also revised downward. The forecast for China was similarly revised lower—the central bank recorded downward risks for export prices. According to a Caixin survey conducted by S&P Global, factory activity in China began to contract (for the first time in the last four months). The Purchasing Managers’ Index (PMI) in China’s manufacturing sector decreased to 49.2 points, although most experts predicted growth to 50.3.
Additional pressure on the Aussie came from Thursday’s retail sales data. Retail trade volume in June decreased by 0.8%—for the first time since December 2022, the indicator moved into negative territory. It was also reported that the trade balance surplus decreased to 11.321 million (compared to 11.791 million the previous month) against the forecast of 11.000 million. The release structure indicates that exports in June decreased by 2.0% after a 4% increase the past month. Imports fell by 4.0% after a 2% rise the previous month.
All the aforementioned fundamental factors put pressure on the Australian currency.
In turn, the U.S. dollar enjoyed increased demand as a safe haven asset this week after Fitch downgraded the long-term issuer default rating of the United States from AAA to AA+. Among the reasons for this decision were worsening budgetary indicators and rising government debt. In the wake of increased risk aversion sentiment, the greenback strengthened across the market.
AUD/USD bears have likely not exhausted their potential. If today’s Nonfarm Payrolls data comes out at least at the forecast level, the U.S. currency may make its presence felt again, including in the AUD/USD pair.
The technical analysis confirms the same. On all “higher” timeframes (from H4 and above), the pair is positioned between the middle and lower lines of the Bollinger Bands indicator, indicating a downside bias. On the D1 and W1 timeframes, the Ichimoku indicator has formed a bearish “Parade of Lines” signal. This signal also indicates bearish sentiments. The nearest significant support level is at the lower Bollinger Bands line on the weekly chart—at 0.6510.
The material has been provided by InstaForex Company – www.instaforex.com
Related Posts: