AUD/USD Sinks but US Dollar Might Be Key

Australian Dollar Forecast: Bearish

  • The Australian Dollar has tumbled from recent peaks
  • The USD remains in the frame for future moves as the Fed meeting looms
  • CPI could hold the key on Wednesday. Will AUD/USD dunk further?

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The Australian Dollar had a whippy week just gone with the domestic highlight being the surprisingly strong jobs data. Externally, the gyrations of the US Dollar continued to add to AUD/USD volatility.

Australia’s unemployment rate was 3.5% in June, below the 3.6% anticipated and prior. 32.6k Australian jobs were added in the month, which was significantly above the 15k expected to be added and 75.9k previously.

Of note were the full-time boost of 39.3k jobs and the slide of -6.7k part-time positions, while the participation rate dipped slightly to 66.8% from 66.9%.

While there have been some signs of slowing down in the economy, the tight labor market makes it difficult for price pressures to be alleviated.

Next Wednesday will see the year-on-year Australian headline CPI to the end of the second quarter. A Bloomberg survey of economists is anticipating 6.2% against 7.0% previously.

The same survey is forecasting the Reserve Bank of Australia’s (RBA) preferred measure of trimmed mean inflation for the same period to be 6.2%. It was 6.6% in the previous quarter.

The quarterly CPI is a more accurate gauge of inflation in the Australian economy than the monthly measure. The latter only measures 62-73% of the weighted quarterly basket. More details can be read here.

The RBA’s mandate of targeting 2 – 3% inflation on average, over time is hitched to the quarterly figure. Wednesday is a red-letter day for traders of Aussie Dollar financial market products.

Additionally, the upcoming week will see monetary policy meetings at the Federal Reserve and the European Central Bank as well as a smorgasbord of data out of the US. All of which have the potential to drive markets and AUD/USD.

Burning away in the background is the Chinese outlook that is struggling to gain traction with authorities nibbling away at the edges to stimulate the economy.

The market appears to be looking for much larger doses of assistance before being convinced that growth and activity will reaccelerate.

While the jobs impacted AUD/USD, the inverse correlation to the DXY (USD) Index might continue to dominate proceedings. The stack of upcoming event risks might see the volatility kick higher across many markets.

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This may sound like a broken record to many of the regular readers of this article, but AUD/USD remains in the five-month trading range of 0.6459 – 0.6900.

It failed to break the upper bound just over a week ago and appears to have confirmed the Double Top.

A break above 0.6920 would negate the pattern, but as long as it stays below that level, potential bearishness may continue to unfold.

Resistance could be in the 0.6900 and 0.6920 zone ahead of possible resistance in the 0.7010 – 0.7030 area where several previous peaks lie,

On the downside, support might be at the breakpoints of 0.6818, 0.6806. 0.6803 and 0.6741 ahead of the prior low of 0.6595.

The dip in price saw AUD/USD move below the 10-day Simple Moving Averages (SMA) but remain above all other period daily Simple Moving Averages (SMA).

For the bulls, this might indicate that short-term bullish momentum has paused, but medium and longer-term momentum may remain in place for now.

Aside from the 10-day SMA, all other SMAs are in the 0.6685 – 0.6720 and that area may provide support.

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— Written by Daniel McCarthy, Strategist for

Please contact Daniel via @DanMcCarthyFX on Twitter

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