Can AUD/USD reverse its five-week decline?

[MongiIG]

The AUD/USD marked its fifth consecutive week of losses, beset by a constant barrage of negative news both from within Australia and abroad.

 

Source: Bloomberg

 

Forex AUD/USD United States dollar Australian dollar Federal Reserve China

 

 Tony Sycamore | Market Analyst, Australia | Publication date: Monday 21 August 2023 

Declines amidst global and domestic pressures

The AUD/USD marked its fifth consecutive week of losses, beset by a constant barrage of negative news both from within Australia and abroad. These included concerns over the Chinese economy, rising US yields, and softer Australian wages and jobs data.

With a 4.75% drop in August and limited data on the Australian economic calendar for the week ahead, the prospects of an Australian dollar recovery now hinge on offshore events, which have begun on a disappointing note.

China's influence and disappointing rate cuts

Reports over the weekend about Chinese authorities discussing measures to stabilize the Chinese economy, including adjustments to real estate credit policies, raised expectations of a 15bp cut to both the 1-year and 5-year loan prime rates. However, the actual outcome fell short, as the short-term 1-year loan rate saw a 10bp cut to 3.45%, while the five-year rate remained unchanged at 4.20%. This led to investor disappointment, reflected in the AUD/USD dropping from .6410 to a low of .6394 before recovering to .6400.

Jackson Hole economic symposium

Later this week, the annual central banker's conference, the Jackson Hole Economic Symposium, will take place. Expectations are for speeches by Fed Chair Powell and ECB President Lagarde. While no new signals on monetary policy are anticipated due to data dependency, the possibility of a more hawkish tone from Fed Chair Powell due to strong US economic data remains a risk.

AUD/USD technical analysis

In the previous week's AUD/USD analysis, we reiterated our bearish stance, emphasizing that a sustained break below support at .6460/50ish could pave the way for a test of the downside support level at .6350.

The .6360/50 support level holds immense importance for the AUD/USD, stemming from the uptrend support from the Covid March 2020 low of .5509 and the .6170 low of October 2022. Experience shows that multi-week/month trend support levels seldom break on the first attempt. Hence, as long as the AUD/USD remains above the weekly uptrend support at .6360/50, a bounce is plausible. This could potentially drive the AUD/USD to test resistance at .6500c and potentially exceed it in a counter-trend rally.

However, it's crucial to note that if the .6350 support level gives way, there's limited downside support until .6200/.6170 (October 2022 low), and even further down to .6000c.

AUD/USD weekly chart

 

Source: TradingView

 

• _{TradingView: the figures stated are as of August 21, 2023. 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.}