AUD/USD Weekly Forecast: Aussie bears gaining ground

• Chinese financial stability is at risk due to Evergrande possible default.
• Central bankers opened to tapering but are still too cautious to spur directional action.
• AUD/USD is technically bearish and could retest the year low at 0.7105.

The AUD/USD pair trades around 0.7240, little changed on a weekly basis, although it posted a third consecutive lower low of 0.7219. A dismal market’s mood undermined demand for the commodity-linked currency, also affected by falling gold prices. The Australian currency traded alongside equities, which in turn followed news coming from China.

Fears and central banks

On Monday, risk aversion took over financial markets, following news that Evergrande, a Chinese property giant, could default on $305 billion, disrupting the country’s financial stability. Concerns extended throughout the first half of the week but eased on Thursday on market talks, the company may be split to avoid collapse. Fears retook control on Friday amid news indicating  Chinese authorities are asking local governments to prepare for the potential downfall of  Evergrande Group, signalling a reluctance to bail out the company.

Market’s behaviour will likely continue to depend on headlines related to the Chinese financial health as, despite much noise coming from Central Banks these days, we are ending the week without tapering timelines. The Bank of Japan, the Bank of England and the US Federal Reserve met this week and generally speaking, optimism prevailed.

The US Federal Reserve maintained its monetary policy unchanged as widely anticipated and announced it might soon start trimming financial support.  “If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the statement read. Ever further, chief Jerome Powell said that they have already reached the inflation threshold to kick start tapering and added that one more jobs’ report would convince him about the economic comeback.

On the other hand, the Reserve Bank of Australia published the Minutes of the latest monetary policy meeting, which repeated the well-known message that rates will likely remain unchanged until 2024. On a mildly positive note, policymakers noted that the latest coronavirus Delta outbreak had delayed, but not derailed, the recovery.

US macroeconomic data released in the last few days have fallen short of expectations. In the US, weekly unemployment claims unexpectedly surged to 351K in the week ended September 17. Also, the preliminary estimates of September Markit PMIs missed expectations, with the manufacturing index down to 60.5 from 61.1 and the services one to 54.4 from 55.4.

Australia published the August Westpac Leading Index, which contracted to -0.27% in August from -0.12% in the previous month, and the Commonwealth Bank September PMIs, which improved from their previous reading but remain within contraction territory.

The following week will bring US August Durable Goods Orders, foreseen up 0.6% after falling by 0.1% in the previous month, and CB Consumer Confidence. The country will also publish the final version of Q3 Gross Domestic Product, expected to be confirmed at 6.6% QoQ.  Finally, the US will release the official September ISM Services and Manufacturing PMIs.

Australia will release on Tuesday, August Retail Sales, foreseen at -2.7% and Private Sector Credit for the same month.

AUD/USD technical outlook

The AUD/USD pair long term technical view indicates that the risk remains skewed to the downside, despite decreasing bearish momentum. In the weekly chart, the pair is trading below a firmly bearish 20 SMA, while resting just above a directionless 200 SMA. Meanwhile, technical indicators remain within negative levels, the Momentum recovering modestly and the RSI consolidating around 40.

The daily chart shows that bears are in complete control. The pair is currently below the 61.8% retracement of its latest daily advance, also below all of its moving averages. The Momentum indicator heads firmly lower near oversold readings while the RSI resumed its decline, currently around 42.

A steeper decline could be expected on a break below the monthly low at 0.7221, exposing the 0.7105 level. Sellers will likely surge if the pair approaches 0.7330, the immediate resistance level, while firmer resistance could be found at around 0.7400.

AUD/USD sentiment poll

According to the FXStreet Forecast Poll, the AUD/USD pair will likely recover from the current levels, although gains will remain limited. On average, the pair is seen in the 0.7260/0.7360 region in the next three months, with the number of those beating on higher levels largely surpassing those waiting for a slide.

In the Overview chart, the moving averages have lost their bearish strength, but their bounces are modest, suggesting an upcoming consolidation rather than suggesting an interim bottom in place. However, worth noting that in the quarterly view, most targets accumulate in the 0.74/0.76 price zone.