AUD/USD: the only way is down, target 0.7160/45
- AUD/USD drifted higher to 0.7216 intra-day high by Turkish central bank steer where the CBRT vows to "adjust" monetary policy next week.
- AUD/USD has also been moving higher with the mean reversion of the 0.7260 sell-off, and or profit taking, in play across the board in thin holiday markets after a sharp pick up in demand for the greenback on Friday where AUD/USD was leading the pack and dropped to a low of 0.7165 from 0.7260.
- The pair is trading below the hourly 10-SMA and testing the downside on the lower end of the daily Bollinger band.
Currently, AUD/USD is trading at 0.7208 from a high of 0.7223 and a low of 0.7165, (post Aussie retail sales miss and Caixin Aug China MFG PMI as expected at 50.6 - no reaction in AUD/USD). The greenback is has been consolidating around 95.20 in the DXY, trading for the best part of the day so far below the middle of its the day's range at 95.10 between 95.00/22. The CRB index continues to consolidate at the neckline of the H&S around 192.95. However, copper is turning lower with a new short-term low set.
A very bearish fundamental picture
The fundamentals are aligning bearish for the pair still as the markets look to the greenback as a safe haven and there is little to no reason to be long of the Aussie as the carry stays with the dollar and the RBA has been clear enough that rates are on hold for the foreseeable future.
Indeed, while AUD shorts have dropped back from recent highs, they remain at elevated levels while US/China trade tensions have weighed on confidence. EM & trade war concerns, lower commodities and global growth concerns all weigh. Last month was a big RBA month - the markets had the policy statement, Minutes, SoMP and the semi-annual testimony. Therefore, this next meeting tonight is probably a non-event yet again.
Aussie GDP on the cards this week
Analysts at TD Securities explained that they expect a repeat that rates are on hold for some time. "Could note (1) Q2 GDP remains around 3%/y (won't have the data early) and/or (2) recent higher mortgage rates. Earlier, Q2 govt spend (TD +0.6%pts) could be market-moving if flat or super-strong and median GDP estimate is tweaked." So moving on, markets will look to the next data set being the Q2 GDP numbers. This is where the analysts at TD Securities are slightly more optimistic forecasting +1.0%/qtr vs the markets expectation of +0.7%/qtr: "So far Q2 construction (dwelling +0.2%pt), consumption (+0.4%pt) and capex (IPE -0.5%/q) and next week brings govt spending, inventories and net exports. +1.0%/q is our tracking where we look for inventories to offset a small contribution from trade, and public final demand to add a decent +0.6%pts to GDP. We also look for Q1 to be upgraded, and so annual Q2 GDP to exceed 3%/y."
AUD/USD levels
The key support is at the Dec 2016 trend low at 0.7160 held and was prompting a small bounce. A break below 0.7160 initially targets minor support at May 2016 low at 0.7145.
Valeria Bednarik, chief analyst at FXStreet explained that The daily chart shows that selling interest remains strong:
"It plunged after breaking below a now bearish 20 DMA, also well below the larger ones, while technical indicators entered negative territory with strong downward slopes. The next relevant support comes at the 0.7150 region, where the pair bottomed multiple times by the end of 2016 and the beginning of 2017, also with lows from late 2016, with a break below it exposing 0.6826, 2016 low. In the 4 hours chart, the pair has fallen over 100 pips below a now vertical 20 SMA, which broke below the 100 SMA, while technical indicators posted modest bounces, with the RSI currently at 26, falling short of suggesting an upward corrective movement ahead."