On the geopolitical front, US-China trade talks has been going well with both sides expressing increased optimism in reaching a deal. US top negotiator Robert Lighthier even confirmed they reached a consensus with China on the enforcement mechanism. However, he also admitted much is left to be done on the structural reforms demanded by the US and it may take some time for a deal to materialize.
This leaves us to focus on the RBA rate decision, the comments from their Governor and Australia’s and US economic data releases, which will likely determine the AUD/USD movement for the week.
Given the weakening global economic outlook, RBA is widely expected to take a wait-and see approach in this week’s rate decision in order to continue its support of the Australian economy. He also reiterated the central bank’s neutral stance in parliament as domestic consumption and economic growth remains relatively subdued.
If we take a look at historic Inflation rate and retail sales data, the latter was back in the doldrums and inflation also wavered a little, marking its third consecutive decline. This indicated a softening outlook.
Historic GDP data was also in line with the other data, pointing to a weakening economy. Unless retail sales data picks up considerably to stay above the 0.0% mark and GDP improves, there is an increased chance that Australia may be headed for a soft landing. This may prompt the RBA to lean more towards a more dovish stance in its next rate decision.
Taking the above mentioned factors into consideration, it is likely Bulls may continue to take a beating from the Bears who are seemingly in control now, at least until the economic data from Australia and US starts to prove them wrong. However, if the converse happens, we could see a good push up from the Bulls as the AUD is now at a crucial support region with relatively attractive pricing.
From the technical perspective, price is now sitting slightly below the crucial support level of 0.70800. The entire area of 0.70000 to 0.71100 will be vital in defending the onslaught of the Bears from last week. Volume was still relatively flat despite the shift in momentum seen in the last 2 weeks.
If the support region manages to hold, we may see price retest the immediate resistance of 0.72000 and then range within the possible confines of 0.72600 and 0.708000 until a clear direction in trade talks and/or RBA’s rate decision is shown.
However, if RBA unexpectedly takes a drastic approach on its rate decision or economic data continues to disappoint, selling pressures could possibly intensify and break the current support region. We may very well see price retest the ultimate support at 0.68257. Anything below that would be similar to the lows during the financial crisis in 2008 and 2009, and we certainly do not want to go there yet.
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