Australian Dollar Outlook: A Sinking US Dollar Floats the AUD Boat
Australian Dollar Forecast: Neutral
- The Australian Dollar has seen some strong bullish momentum this month
- The weaker USD has been a key driver to boost many other currencies and commodities
- With technical levels broken, will AUD/USD go higher?
The Australian Dollar smashed through the resistance ceiling to make a 4-month high last week after the US Dollar collapsed. Since the start of June, AUD/USD has gained in 15 out of 17 sessions.
The Fed left rates unchanged at its Federal Open Market Committee (FOMC) meeting last Wednesday. Treasury yields dipped in the aftermath, undermining the ‘big dollar’.
Likewise, the Bank of Japan left monetary policy unchanged at its ultra-loose setting but the European Central Bank hiked rates while the People’s Bank of China (PBOC) eased policy.
In the end though, it was the dominance of the US Dollar across markets that drove prices last week and the Aussie Dollar was in the thick of it.
CHART - AUD/USD, GOLD, COPPER, IRON ORE, WHEAT AND DXY (USD) INDEX
Elsewhere, domestic data tilted further toward another potential lift in rates from the RBA in a fortnight.
The unemployment rate was 3.6% in May against the 3.7% anticipated and prior. 75.9k Australian jobs were added in the month, which was notably above the 17.5k expected to be added and -4.3k previously.
Of note was the full-time boost of 61.7k and the nudge higher in the participation rate to 66.9% from 66.7%.
Before the jobs numbers, the futures market allocated about a 20% chance of a hike in the cash rate by the RBA at its July monetary policy meeting. They now see a bit over 50% probability of a 25 bp lift.
The 3s 10s yield curve has inverted for the first time since the global financial crisis. A flattening or inversion of the yield curve is seen as a potential harbinger of an impending economic slowdown.
When it occurs, it implies that the bond market sees a problem further down the track, to the point that interest rates will need to be lower in the future relative to where they are in the near term.
Looking ahead, there is very little this week in the way of data for the Australian economy, but there is plenty on the schedule for the US. In addition, it seems that we might get a few rounds of fresh speakers offering their opinions on where the Fed’s rate path is headed.
China also has the potential to provide some AUD volatility with speculation rife that more measures to stimulate its economy could be forthcoming from Beijing.
AUD/USD TECHNICAL ANALYSIS
After making a clean break above an ascending trend line, AUD/USD got above all short, medium and long-term daily Simple Moving Averages (SMA) and bullish momentum took hold.
The price then ran above a cluster of resistance levels. Those levels might now become a support zone in the 0.6780 – 0.6820 area. Further down, support could be at the breakpoints of 0.6784, 06574 and 0.6565 or the prior low of 0.6458.
On the topside, resistance might be at the previous peaks of 0.6920, 0.7011 and 0.7030.
--- Written by Daniel McCarthy, Strategist for DailyFX.com
Please contact Daniel via @DanMcCarthyFX on Twitter
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.