Following the release of much stronger Aussie employment data overnight, the AUD/USD bounced back while other AUD pairs also found good support. However, recently, the dominant drivers for the Aussie haven’t been domestic factors. Concerns about China’s economy has persisted despite the government’s stimulus efforts to revive growth. Meanwhile, the US dollar has gone from strength to strength against all major currencies as traders dial back rate-cut expectations amid the surprising resilience in data. Meanwhile, as the US presidential election approaches, the greenback is expected to stay supported. So those expecting the AUD/USD forecast to turn bullish because of a stronger domestic economy in Australia should realise that this risk-sensitive currency pair will be facing many external challenges that could ultimately hold it back in the near-term outlook.
US retail sales beat expectations
One of the reasons why the AUD/USD has been unable to find much love despite an otherwhile bullish domestic factors is to look at the USD side of things. The US dollar has gone from strength to strength in recent weeks against all major currencies as traders have dialled back their aggressive rate-cut expectations amid the surprising resilience in data. Today we had stronger retail sales, Philly Fed Manufacturing Index and jobless claims figures. Headline retail sales came in at 0.4% while core sales printed +0.5%, with the latter much higher than +0.1% expected. Though the retail sales data dint have an immediate impact on the AUD/USD, the fact that the USD/JPY climbed above 150.00 or the EUR/USD slipped below 1.0850 means we could potentially see delayed reaction in this pair too.
US election uncertainty also supporting the greenback
Meanwhile, as the US presidential election approaches, the greenback is expected to stay supported, with markets increasingly watchful for potentially a surprising victory for Donald Trump. Recent polls show Kamala Harris's national lead shrinking, prompting traders to factor in the possibility of a Trump win. Trump’s hawkish stance on protectionism could weigh heavily on certain currencies if he prevails. A Trump win is likely bad news for the Chinese yuan, Mexican peso, and the euro, with the China-linked Aussie also feeling some pressure, though to a lesser extent.
Focus turns to Chinese data and the PBOC
On Friday we will have a cluster of key data from the world’s second largest economy which could have a major influence on the AUD/USD forecast. Among the data highlights, we will have the third quarter GDP which should reveal the world’s second largest economy remained well below the 5% annual growth target in the third quarter. It is expected to print an annualised growth of 4.6% for Q3 compared to the same period a year earlier. Also due for release are the latest retail sales and industrial production numbers.
On Monday, the focus will then turn to the People’s Bank of China. The Chinese central bank last cut the 1-Year Loan Prime Rate to 3.35% from 3.45% and the 5-year to 3.85% from 3.95% in July in an unexpected decision. These are the rates at which commercial banks lend to households and businesses. With the lack of details of the latest stimulus measures from the Chinese government disappointing investors this week, could we see more easing from the PBOC to help the nation achieve its growth target?
Technical AUD/USD forecast and trade ideas
Source: TradingView.com
The AUD/USD’s technical forecast looks somewhat bearish judging by recent price action. At the time of writing, the AUD/USD was testing old support seen in the range between 0.6700 to 0.6740. if resistance holds here, then we could see a drop towards the 0.6600 handle next, with this round handle coming in just below the 200-day moving average and the September low (0.6222). As things stand, therefore, the path of least resistance remains to the downside for the AUD/USD despite today’s recovery.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
