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Australian Dollar Forecast: Key AUD/USD Levels to Watch, Risk of Breakdown

Australian Dollar Forecast: Key AUD/USD Levels to Watch, Risk of Breakdown

Justin McQueen, Analyst

Australian Dollar Analysis and Talking Points

  • AUD/USD | Risks a Breakdown on Soft Jobs Data
  • Key Trendline Support Holding
  • RBA Rate Cut Probability at 42%

AUD/USD | Risks a Breakdown on Soft Jobs Data

Last week, we highlighted that upside in AUD/USD could be limited with resistance at 0.6930-35 capping the pair. Since then, the Australian Dollar has extended its recent downside amid the rising concerns over the Chinese virus outbreak, which in turn prompted a dip across risk assets. However, looking forward, much of the focus will be on the Australian jobs report, which will be pivotal for the near-term outlook for the currency.

Given that market pricing for an RBA rate cut is at 42% we see two-way risks for AUD/USD, whereby a weaker than expected employment report would likely see the pair break the 0.6800 handle to test 0.6780. While a firm report could see a retest of 0.6900 as markets price out the likelihood of near-term easing. As it stands, with employment indicators signalling the labour market will continue soften, we see risks are tilted to the downside.

Australian Labour Market at Risk of Softening Further

Australian Dollar Forecast: Key AUD/USD Levels to Watch, Risk of Breakdown

On the technical front, DMI’s signal that bearish momentum is intact and thus raises the risk of a firm break below the rising trendline stemming from the 2019 low. In such case, this would likely see a dip towards 0.6800 with a follow through to 0.6780.

AUD/USD Vanilla Options: 0.6780 (516mln), 0.6900 (411mln)

Implied Daily range (0.6807 – 0.6865)

Support

Resistance

0.6840

Trendline Support

0.6848

100DMA

0.6802

Dec 10th Low

0.6862

200DMA

0.6780

Vanilla Options

0.6883

50DMA

AUD/USD Price Chart: Daily Time Frame (Jul 2019 Jan 2020)

Australian Dollar Forecast: Key AUD/USD Levels to Watch, Risk of Breakdown

Source: IG Charts

--- Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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