AUD to USD Forecast: Bears Eye Sub-$0.66 on Risk Aversion

Highlights

• It is the morning after the surprise RBA hold, with manufacturing numbers from Australia in focus this morning.
• However, later today the US ADP nonfarm employment numbers could deliver another major move.
• The near-term technical indicators turned bearish, signaling a return to $0.6650.

On Tuesday, the AUD/USD tumbled by 1.43% to end the day at $0.66130. A surprise RBA decision to leave the cash rate unchanged at 4.10% sent the Aussie to sub-$0.6650.

This morning, AIG Manufacturing Index numbers for July will be in focus. The numbers are unlikely to impress when considering the disappointing numbers from China and Europe. Economists forecast the Index to fall from -19.8 to -22.0.

The services sector has the most marked contribution to Australian GDP, circa 65%, while the manufacturing sector accounts for circa 25%. On this basis, the Index would have to see a more marked decline than forecasts to move the dial.

The US Session

It is a busy US session, with ADP nonfarm employment numbers for July in focus. While the latest US CPI Report eased bets on a September Fed rate hike, tighter labor market conditions would support a further pickup in wage growth and drive demand-fueled inflation. Economists forecast a 188k increase. In June, the ADP reported a 497 surge.

Labor market conditions remain a consideration for the Fed and monetary policy. Tighter labor market conditions would lead to higher wage growth levels and a demand-driven inflation pickup. Notably, the US labor market forms part of the Fed’s dual mandate, with the longer-run normal rate of unemployment estimated to be 4.1%. The US unemployment rate fell from 3.7% to 3.6% in June.

AUD/USD Price Action

Daily Chart

The Daily Chart showed the AUD/USD tumble through the $0.6700 – $0.6680 resistance band and the 50-day EMA ($0.67105) in response to the RBA interest rate decision. Support at the lower level of the $0.6620 – $0.6600 support band cushioned the downside on Tuesday.

After the Tuesday sell-off, the AUD to USD sat below the 50-day ($0.67105) and 200-day ($0.67471) EMAs, sending bearish near and longer-term price signals. The 50-day EMA fell back from the 200-day EMA, affirming the bearish trend.

Looking at the 14-Daily RSI, the 41.18 reading signals bearish sentiment and supports a fall through the 0.6620 – 0.6600 support band. However, an AUD/USD move through the $0.6680 – $0.6700 resistance band and the 50-day EMA ($0.67105) would give the bulls a run at the $0.6729 – $0.6755 resistance band. Failure to move through the 50-day EMA would leave sub-$0.66 in play.

4-Hourly Chart

Looking at the 4-Hourly Chart, the AUD/USD sits within the $0.6620 – $0.6600 support band. The AUD/USD also remains below the 50-day ($0.67096) and 200-day ($0.67216) EMAs, sending bearish near and longer-term price signals.

Significantly, the 50-day EMA pulled back from the 200-day EMA after the Tuesday bearish cross, supporting a fall through the $0.6620 – $0.6600 support band. However, an AUD/USD move through the $0.6680 – $0.6700 resistance band would bring the 50-day EMA ($0.67096) into play.

Looking at the RSI indicator, the 14-4H RSI reading of 34.51 indicates bearish momentum, with selling pressure outweighing buying pressure. The RSI signals a fall through the $0.6620 – $0.6600 support band to sub-$0.66.