Are the AUD Bears Back in Control or Will Bulls Put Up a Good Fight?

Market Analysis /
Axi Team / 04 Mar 2019

Last Week Market Wrap

  • The scheduled increase in US trade tariffs against China’s goods were officially delayed until “further notice”. Negotiators were still overall optimistic in reaching a deal though there were mixed reports from the US and much is left to be done on structural and enforcement commitments
  • Trump-Kim summit ended abruptly without a deal on Thursday as Trump walked away from negotiations after North Korea pushed for complete removal of economic sanctions without providing clear steps on denuclearization
  • US Fed Powell testified on Capitol Hill, reiterated the Fed’s stance on being “patient” with rate hikes and signalled an end to the balance sheet reduction program by end of the year. He also said the US economy is “in a good place” and growing well
  • US data were mixed with Advance GDP threading higher than expected at 2.6% (vs forecasted 2.2%) while ISM Manufacturing PMI fell short of expectations and below previous period at 54.2 vs a forecasted 55.6
  • Australia’s private capital expenditure advances by 2.0% QoQ beating forecast of a 0.8% gain and higher than previous period of 0.0%
  • China’s Caixin Manufacturing PMI reported a better than expected reading of 49.9 and an improvement from pervious period. However, it only temporarily lifted the AUD in early intra-day trading as it still closed lower for the week

The Week Ahead

  • RBA rate statement on March 5. It is widely expected that RBA will keep its rates unchanged to support the economy and any deviation from this may send the AUD plunging or potentially surging to new levels
  • Watch out for RBA Governor’s Lowe statement on Wednesday as history has taught us, his speech may either support or reverse Tuesday movements depending on RBA’s view of the economy and possible likelihood of a rate cut
  • Australia’s GDP QoQ data will be released on Wednesday with retail sales data coming in on Thursday. Continued soft readings could potential increase the odds of a rate cut
  • The usual high impact US Non-farm payroll and a string of other US employment data will be released on Friday
  • Do keep a look out for US Fed Powell’s speech on Saturday if traders are looking to hold their positions over the weekends. The employment data release on Friday may affect how Powell shape his speech

Bears may try to push through the defensive line put up by Bulls but expect a good fight

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.

AUD/USD Technical Analysis

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.

The information provided here has been produced by third parties and does not reflect the opinion of AxiTrader. AxiTrader has reproduced the information without alteration or verification and does not represent that this material is accurate, current, or complete and it should not be relied upon as such. The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

More on this topic

See More News

Open your account. Trade within minutes.

Start your trading journey with a trusted, regulated, multi-award winning broker.

Open Account Try Free Demo