Australian Dollar Forecast: Neutral
- The Australian Dollar firmed slightly last week as markets contemplate rate paths
- Treasury yields continue to climb, broadly supporting the US Dollar
- Trend line support remains in play for AUD/USD. Will it hold?
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The Australian Dollar found some friends last week after tumbling in the week prior to a 10-month low on a stronger US Dollar and China growth concerns.
The ‘big dollar’ remains supported after the much-anticipated Jackson Hole economic symposium hosted by the Kansas City Federal Reserve.
The headline act was of course Fed Chair Jerome Powell’s speech on Friday. His comments saw interest rate markets rethink the rate path for the Fed. They are now pricing a slightly higher probability of a tightening in policy at the November Federal Open Market Committee (FOMC) meeting at around 60%.
Powell reiterated many of his prior remarks, namely that policy will need to remain tight until the 2% inflation target is well within grasp.
He acknowledged that recent readings were a good sign but that further evidence that price pressures were contained was needed. He also made it clear that decisions going forward are data-dependent.
Further along the curve, the rates market scaled back on cuts by the Fed next year and this helped to drive the benchmark 2-Treasury yield within a whisker of the 17-year high seen in July at 5.118%.
The spread between the 2- and 10-year Australian Commonwealth Government Bond (ACGB) and Treasuries continues to be supportive of USD.
AUD/USD, DXY (USD) INDEX, 2- AND 10-YEAR AU-US BOND SPREADS
Chart created in TradingView
The China situation continues to bump along the road with the government there announcing measures to help first-home buyers acquire a property.
The beleaguered Chinese real estate market needs all the help it can get and this latest announcement has generally been interpreted by the market as not enough, but a step in the right direction and has led to hopes that more stimulus might be forthcoming.
For AUD/USD in the week ahead, US yields and news out of China may continue to provide volatility in the price action. On the domestic front, retail sales and building approvals will be the focus.
The monthly CPI number will also be released, but its reliability is yet to be proven for where the more accurate quarterly CPI gauge is at.
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AUD/USD WEEKLY CHART – THE BIGGER PICTURE
Looking at the weekly AUD/USD chart, for the second week the price is testing an ascending trend line that is part of a Symmetrical Triangle.
It has failed to close under the ascending trend line but a clean break below it might see bearish momentum evolve. Click on the banner above for more information about Breakout Trading.
Chart created in TradingView
AUD/USD DAILY CHART
After making a 10-month low a fortnight ago, AUD/USD has consolidated but it remains in a descending trend channel.
On the downside, support may lie at the breakpoints and previous lows of 0.6386,
0.6365, 0.6272 and 0.6170.
The latter might also be supported at 161.8% Fibonacci Extension level at 0.6186. To learn more about Fibonacci techniques, click on the banner below.
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The failure to close below the trend line seen on the weekly chart and the prior low at 0.6386 could see further consolidation. A daily close below it may see a reacceleration of bearish momentum.
Nearby resistance could be at the breakpoints near 0.6460 ahead of a cluster of breakpoints and prior peaks in the 0.6595 – 0.6615.
Chart created in TradingView
AUD/JPY TECHNICAL ANALYSIS
AUD/JPY consolidated last week in a similar fashion to AUD/USD after making a 2-month low the week prior.
There are a series of prior lows and breakpoints in the 92.80 – 93.00 area that may provide a support zone.
Further down, support may lie at breakpoints of 92.30 and 92.44 ahead of the 50% Fibonacci Retracement level at 91.85 which is near the July low of 91.80.
Support might also be at 61.8% Fibonacci Retracement level at 90.50. To learn more about Fibonacci techniques, click on the banner below.
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On the topside, resistance could be at the descending trend lines currently dissecting near 94.20 and 94.60. The previous peaks near 94.90 may also offer resistance.
Resistance could also be found at the prior peaks and breakpoints of 95.74, 95.85, 96.88 and 97.67.
Chart created in TradingView
— Written by Daniel McCarthy, Strategist for DailyFX.com
Please contact Daniel via @DanMcCarthyFX on Twitter