Chapter 16 08/30 AUDUSD: Set the Foundation as There Is No Direction on the Market
Abstract: Australia's monthly inflation index is lower than expected, reflecting the global trend, and supporting the reasons for the Reserve Bank of Australia to extend the suspension of interest rate hikes at its policy meeting next week.
Fundamentals
According to data released by the Australian Bureau of Statistics on Wednesday, the consumer price index rose by 4.9% year-on-year in July, lower than the market expectation of 5.2%. Inflation has slowed down for three consecutive months. In addition, construction permits also fell sharply, down 8.1% from the previous month. This bodes well for the more important quarterly inflation data in two months.
The cooling of inflation is welcomed by the Reserve Bank of Australia (RBA), which has been placed in data-dependent mode since it raised interest rates 12 times. However, the RBA is unlikely to change its wait-and-see mode because price pressure may persist. The RBA predicts that by the end of 2025, the inflation rate will fall back to the target range of 2.00-3.00%.
Overall, the decline in data is good news for the RBA, but we have noticed that the data in August and September may bring greater price pressure because they are more sensitive to service costs and recent energy price increases.
As for the short-term prospect of the AUD, it still depends on the economic data of the U.S. At present, the exchange rate and market are very sensitive to the key data released by the U.S., namely the labor market and inflation data. If the U.S. employment data released on Friday is weak, it will aggravate the recent fluctuation of the USD, but on the contrary, if the employment data is stable, it will support the USD.
Technical Analysis
The AUDUSD has remained above the 2020 support trendline after testing and breaking the bottom of the uptrend line for the third time since the COVID-19 pandemic. This came after five consecutive bearish weeks, which resulted in prices falling to a nine-month low of 0.6364.
However, the AUDUSD could be on track for its first weekly gain in five weeks as prices head back towards the 20-day SMA. Upside reversals in the Relative Strength Index and Stochastic are pushing prices higher, although the former is significantly below the neutral threshold of 50, while the MACD, despite gradual improvement, is still consolidating at the 0-axis level with no direction. Both are skeptical about whether the price can continue to rebound.
If bulls break above the 20-day SMA, the next resistance could come near the 0.6570-0.6615 limit range, where prices have repeatedly put trading on pause in previous months. Above that, the rebound could extend to the threshold of 0.6700 and the 200-day SMA at 0.6730. This is looking on the bright side.
Nevertheless, we still believe that the downtrend created by the "double top" is not completely over. After the adjustment, the bears will hopefully test the October 2022 bottom.
If it continues to cruise within the oscillating triangle structure and is slow to break above it, then the bears may regain control. Focus will again turn to near-term support around 0.6400. If this level collapses again and breaks below the 0.6363 level, it could fall towards the 0.6280 threshold in October 2022 or even lower. Even lower, bears could start another race within the 0.6169-0.6200 range near the 30-month lows.
Overall, the AUDUSD appears to be once again laying the groundwork for the next bullish phase near the 2020 support trendline, although it will take more effort to realize the bullish trend. But we think it probably won't, at least the downward momentum isn't completely gone. It is recommended to go short at the highs.
Trading Recommendations
Trading direction: Short
Entry price: 0.6466
Target price: 0.6256
Stop loss: 0.6640
Deadline: 2023-09-13 23:55:00
Support: 0.6440, 0.6400, 0.6364
Resistance: 0.6488, 0.6520, 0.6610
