AUDUSD breaking bad

For the past three months, the AUDUSD has confounded both the bulls and bears as it rotated between support near .7000c and resistance at .7200c. Finally, this week, the AUDUSD appears to have made a decisive step in favour of the downside.

Overnight calls by President Trump for the Federal Reserve to cut interest rates to support the economy and optimism that talks with China would soon yield a trade agreement have for the moment calmed the nerves of U.S. equity markets.

However, outside of equities, there is scepticism that an agreement can be struck quickly. This is because the U.S. has demanded that China grant constitutional status to a trade agreement, something that China is unlikely to accede to as it would undermine Chinese sovereignty.

With the scene set for the standoff between the U.S. and China to continue, domestic data in Australia has further undermined support for the AUDUSD. This morning, Australian Wage Price Index data for Q1 printed at 0.5%, with the year on year rate remaining stable at 2.3%. This was below expectations and still, a long way below the 3.5% year on year pace the RBA has indicated is consistent with its inflation target.

Yesterday, the NAB business survey showed confidence falling to -0.3, its lowest level in over four years. Keep in mind that there has not been a fall or negative reading for business confidence that has not been followed by an RBA rate cut. Furthermore, the employment index fell to its lowest level since 2015.

Yesterday’s fall in the employment index combined with the RBA’s focus on the labour market has placed even more importance on tomorrows labour market data for April. As a guide should the unemployment rate edge up to 5.2% or higher, it is likely to see the AUDUSD’s slide accelerate as calls for interest rate cuts are bought forward.

In this case and providing the AUDUSD remains below the band of resistance .6980/.7020c there appears room for the move lower to continue towards the January 2016, .6826 low, with risk for a test of the flash crash low from earlier this year at .6725. Traders, therefore, might like to consider scaling into a short AUDUSD positions on bounces towards .6960/80 with a stop loss placed above .7025.

Source Tradingview. The figures stated are as of the 15th of May 2019. 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

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