What can we expect from AUD/USD?

AUD/USD Technical Analysis

Technicals:

  • Could be at the start of a new Elliott Wave pattern to the upside but a break of .7400 is needed to confirm
  • .7160 is an important support level if it breaks this could suggest trend continuation
  • RSI has broken lower watch out for a hold above 50

AUD/USD Market Profile

On the market profile chart, the area between .7157 and .7018 looks very congested. We have since auctioned higher and ranged between .7157 and .7393. If we saw a bearish NFP result we could revert to the mean value area of .7254 or possibly higher. If the market is net bearish this could be the area where a lower high is formed. In a bullish view, only a break of .7293 would confirm a wave break higher.

Fundamental backdrop

Across the currency spectrum, and not just against the USD, we have seen a weakness in the AUD in the past week or so, with domestic matters weighing on the currency, in particular, this week. The RBA meeting threw up few surprises in keep rates unchanged and maintained the balance of economic pros and cons within its statement. In essence, the RBA still sees the next rate move as up, though as has been the case for some time now, it is a matter of timing and widening differentials with US rates have largely dictated losses in the spot rate. In the past month or so, however, AUD – along with the NZD – has recouped some ground against the greenback, though this has been more a function of its oversold status and in the time it has been achieved.

Hitting highs close to 0.7400, AUD/USD resistance has been largely based on the global factors surrounding the threats to global trade. As US actions against China have threatened demand for Australian raw materials, so the longer term negative bias is set to contain the upside. There was been some periodic mismatch in the sensitivity to data – for example, the relief from the near term truce between the major economic powerhouses over the G20 weekend, though as above, domestic matters are now weighing on the AUD, with this week’s Q3 growth coming in lower than expected at 0.3%. Trade data was also lower than forecasts, though both cases argue for continued expansion – perhaps not as much as expected, though enough to battle through tough times in the current climate. We have also seen commodity prices picking up and finding some resilience despite a stronger USD, so this should suggest a level of underlying demand as the world ‘ticks over’.

Australia may be some way off raising rates from current levels, but at this stage, some of the alarmist calls for a rate cut seem out of place in our view.

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