Despite the negativity surrounding RBA’s recent switch to neutral policy stance, the AUD was able to stage a modest recovery last week due to weakenss in the US data and optimism surrounding the US-China trade talks.
Slowing global economic growth made worse by the US-China trade war, dismal retail sales figures and deep correction in the housing market led to RBA’s switch in stance to a more neutral approach.
Therefore, focus of the week would be Australia’s employment numbers which had held up well so far, with the unemployment rate hovering between 5% to 5.3%. It is expected that it will remain unchanged at 5%. If employment numbers disappoint in the upcoming days, we may very well see RBA tilt to a completely dovish stance.
On the other side of the coin, the US-China trade talks optimism continues to hold AUD up when things are in the doldrums. Though the situation is still delicate with much distance to be covered for both sides, a slight improvement like a delay in imposing additional tariff, may help to lift risk sentiments, boosting the AUD. Moreover, on the backdrop of US Fed’s dovishness and softer retail sales data, the USD strength may stall further. The current political tension in the US due to the national emergency being declared will also likely weigh on the USD.
Hence, this leads us to believe that the drop in AUD/USD may be muted in the coming week, unless the trade war escalates further or US related events surprise on the upside.
Risk on sentiments helped the AUD/USD rebound last week after the sell-off in the prior week. It managed to close off the week modestly higher at 0.71369. Bullish interest can be seen supporting the price at the region between 0.70200 to 0.71000. If the sell down resumes this week but the support area holds well, price may eventually retest the resistance level of 0.72680. Breaking this resistance could send price up to the next resistance at 0.73750.
However, if employment data disappoints and/or the trade war escalates, there may be enough momentum to break the support region mentioned above and could fall quickly to the next support at 0.68257.
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