Can AUD/USD reverse its five-week decline?
The AUD/USD marked its fifth consecutive week of losses, beset by a constant barrage of negative news both from within Australia and abroad.
Declines amidst global and domestic pressures
The AUD/USD marked its fifth consecutive week of losses, beset by a constant barrage of negative news both from within Australia and abroad. These included concerns over the Chinese economy, rising US yields, and softer Australian wages and jobs data.
With a 4.75% drop in August and limited data on the Australian economic calendar for the week ahead, the prospects of an Australian dollar recovery now hinge on offshore events, which have begun on a disappointing note.
China's influence and disappointing rate cuts
Reports over the weekend about Chinese authorities discussing measures to stabilize the Chinese economy, including adjustments to real estate credit policies, raised expectations of a 15bp cut to both the 1-year and 5-year loan prime rates. However, the actual outcome fell short, as the short-term 1-year loan rate saw a 10bp cut to 3.45%, while the five-year rate remained unchanged at 4.20%. This led to investor disappointment, reflected in the AUD/USD dropping from .6410 to a low of .6394 before recovering to .6400.
Jackson Hole economic symposium
Later this week, the annual central banker's conference, the Jackson Hole Economic Symposium, will take place. Expectations are for speeches by Fed Chair Powell and ECB President Lagarde. While no new signals on monetary policy are anticipated due to data dependency, the possibility of a more hawkish tone from Fed Chair Powell due to strong US economic data remains a risk.
AUD/USD technical analysis
In the previous week's AUD/USD analysis, we reiterated our bearish stance, emphasizing that a sustained break below support at .6460/50ish could pave the way for a test of the downside support level at .6350.
The .6360/50 support level holds immense importance for the AUD/USD, stemming from the uptrend support from the Covid March 2020 low of .5509 and the .6170 low of October 2022. Experience shows that multi-week/month trend support levels seldom break on the first attempt. Hence, as long as the AUD/USD remains above the weekly uptrend support at .6360/50, a bounce is plausible. This could potentially drive the AUD/USD to test resistance at .6500c and potentially exceed it in a counter-trend rally.
However, it's crucial to note that if the .6350 support level gives way, there's limited downside support until .6200/.6170 (October 2022 low), and even further down to .6000c.
AUD/USD weekly chart
- TradingView: the figures stated are as of August 21, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Live prices on most popular markets
- Equities
- Indices
- Forex
- Commodities
Prices above are subject to our website terms and agreements. Prices are indicative only. All share prices are delayed by at least 15 minutes.
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
