AUD/USD ANALYSIS & TALKING POINTS
- How will the RBA react to the recent market re-pricing?
- Australian and US inflation data in focus.
- AUD/USD death cross, bear flag and client sentiment suggest AUD weakness to come.
AUSTRALIAN DOLLAR FUNDAMENTAL BACKDROP
The Australian dollar heads into next week after a pretty muted week in terms of price volatility against the U.S. dollar. Thus far, the Reserve Bank of Australia has been grappling with data both locally and internationally after they decided to pause rate in the previous interest rate meet. The latest RBA minutes indicated that the door remains open to further hikes if needed and since then the RBA’s interest rate probability table below has been ramped up by money markets to include another potential 25bps hike in 2023 – a stark change from a few days earlier when no such hike was on the cards!
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RBA INTEREST RATE PROBABILITIES
Source: Refinitiv
The week ahead (see economic calendar below) is stacked with high impact events mostly skewed towards the US. From an Australian perspective, inflation for the first quarter is expected to come in lower on both YoY and QoQ metrics which could change the above rate probability chart back to no further hikes should inflation come in low.
US data which has been light of recent, looks to ramp up once more this week with the US GDP and the Fed’s preferred measure of inflation (core PCE) on the calendar. It will be interesting to see how these and others (durable goods and consumer sentiment) play into the recent hawkish commentary from Fed speakers.
ECONOMIC CALENDAR
Source: DailyFX economic calendar
Strong Chinese GDP last week helped commodity prices rally as demand forecasts were revised to the upside but since then we have seen a deterioration as global recessionary fears gain traction. The AUD being so heavily influenced by commodity exports, lower prices naturally pressurize the local currency.
TECHNICAL ANALYSIS
AUD/USD DAILY CHART
Chart prepared by Warren Venketas, IG
Daily AUD/USD price action has been developing a bear flag type chart pattern in conjunction with the death cross (red) early last week. These signs are ominous for the Aussie dollar but could find its footing should the pair break below the 0.6700 psychological handle. Next week’s fundamental data could be the catalyst that either validates/invalidates the bear flag.
Key resistance levels:
- 0.6800
- 0.6772
- 50-day MA (yellow)/200-day MA (blue)
Key support levels:
- 0.6700
- Bear flag support
- 0.6620
IG CLIENT SENTIMENT DATA: BEARISH
IGCS shows retail traders are currently LONG on AUD/USD, with 73% of traders currently holding long positions. At DailyFX we typically take a contrarian view to crowd sentiment resulting in a short-term downside disposition.
Contact and followWarrenon Twitter:@WVenketas
