Key Points:
- Last week saw substantial losses accrue.
- A period of moderation could now be on the cards.
- Fundamentals should be in command this week.
The AUD went plunging lower last week which could mean that a correction is now on the cards. However, given the voracity of the slip, we may see new lows tested before the bulls can take back control of the embattled pair. As a result of this, a look at both what was driving price action last week and what is set to drive prices this week is now more than warranted.
Taking a look at last week first, the Aussie dollar spent initial sessions of last week surging higher as a result of not only some softer US figures but also the Cash Rate decision from the RBA. Nevertheless, this buoyancy was not to last as a subsequent uptick in the US ADP NFP figure to 177K and an accompanying jump in the ISM Non-Manufacturing PMI to 57.5 saw a sentiment swing back towards the USD, despite the Fed also electing to keep rates static. Ultimately, this saw the pair tumble by over 100 pips but, unlike the wider market, these losses failed to moderate in the proceeding sessions as the Australian Trade Balance of 3.11B kept selling pressure intact as the week closed.
As for what lies ahead fundamentally, there are a number of Australian news items to watch out for but the Retail Sales and MI Inflation Expectations figures are likely to be the major risk events. This stems largely from the fact that the AUD has never truly shaken-off the recessionary fears that weighed on it following the negative GDP results over the past few months. As a result of this, if we see Retail Sales fall short of the forecasted 0.3% outcome or if the Inflation Expectations suggest that the RBA’s target band is not going to be reached, losses could extend.
On the technical front, the AUD still remains beholden to a declining trend line but losses should moderate somewhat in the coming week if the fundamentals come in on target, potentially leading to a near-term ranging phase. Specifically, the AUD is currently in conflict with a robust historical reversal zone which could remain intact unless the economic results miss the mark substantially. This being said, the EMA, MACD, and Parabolic SAR readings all remain bearish which will severely limit chances of a strong recovery occurring.
Overall, at best, we expect to see modest gains for the week to come but significant downside risks are also in play. Due to this, keep a watchful eye on the news feed as it will only take a slight push from the fundamental side of things to see the bears seize on the very bearish technical bias.
