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AUD/USD ANALYSIS &TALKING POINTS
- Spotlight on PMI data this week.
- Markets eye 50bps for RBA rate decision.
AUSTRALIAN DOLLAR FUNDAMENTAL BACKDROP
The Australian dollar faced several headwinds from PMI data this morning (see economic calendar below) but has shown resilience ahead of the Reserve Bank of Australia (RBA) interest rate decision tomorrow. Both China’s Caixin and Australian Manufacturing PMI prints for July fell, highlighting global recessionary fears.
Later today, U.S. ISM Manufacturing PMI’s will take center stage and is projected to come in lower at 52 than the previous 53 release. This will keep the economy in expansionary territory but a miss could stoke the current economic slowdown narrative. Generally the Australian dollar does not react well to risk being a ‘pro-growth’ currency while the U.S. dollar tends to act as a safe-haven during times of uncertainty as investors flock to U.S. Treasuries.
ECONOMIC CALENDAR
Source: DailyFX economic calendar
China being a key trading partner with Australia carries great significance for the Aussie dollar and has much influence over the commodities landscape. Further weakening of the Chinese economy could have negative effects on AUD down the line however, markets have shrugged off these data points for now as we turn to the RBA rate announcement tomorrow. Money markets are currently pricing in a 50bps rate hike for tomorrow with declines set to begin from October onwards. The possibility of a 75bps is still on the table but less likely but the dovish re-pricing of the Federal Reserve has created an opening for AUD to find support.
RBA INTEREST RATE PROBABILITIES
Source: Refinitiv
AUD/USD TECHNICAL ANALYSIS
AUD/USD DAILY CHART
Chart prepared by Warren Venketas, IG
Although Aussie bulls failed to close above the 0.7000 psychological resistance zone last week, a hawkish RBA could prompt this move for the first time since mid-June. This being said, I do not foresee any significant short-term upside bias taking shape as the USD remains fundamentally strong.
Key resistance levels:
- 100-day EMA (yellow)
- 0.7000
Key support levels:
- 50-day EMA (blue)
- 20-day EMA (purple)
- 0.6824 (23.6% Fibonacci)
IG CLIENT SENTIMENT DATA: MIXED
IGCS shows retail traders are currently LONG on AUD/USD, with 56% of traders currently holding long positions. At DailyFX we typically take a contrarian view to crowd sentiment however, recent changes in long and short positioning results in a short-term cautious bias.
Contact and follow Warren on Twitter: @WVenketas
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