AUD/USD Weekly Forecast: Aussie bulls won’t give up easily

• The RBA is working out its way to control the yield curve, the Fed ignores it.
• The Australian economy keeps recovering at a solid pace, Q4  GDP at 3.1%.
• AUD/USD could extend its decline, but the long-term view indicates limited bearish scope.

The AUD/USD pair kick-started the week with a positive tone, rising to 0.7837, but fell to its lowest in three weeks, below the 0.7700 threshold. The slump was all about demand for the American currency amid renewed strength in government bond yields.

RBA and the Fed have different approaches to yields’ run

On Tuesday, the Reserve Bank of Australia had a monetary policy meeting. The central bank left the cash rate unchanged at a record low of 0.10%, as widely anticipated. The QE program was also maintained on hold. More relevantly, Governor Philip Lowe reaffirmed the commitment to maintain the three-year yield target at 10 basis point, indicating that the central bank stepped in “to assist with the smooth functioning of the market.” His words brought relief to investors, which pushed the pair towards the mentioned high.

US Federal Reserve chief Jerome Powell, on the other hand, unleashed concerns. Powell showed no signs of being worried about rallying yields and give no hints on possible intervention in the bond markets. In fact, he reaffirmed that the current monetary policy will remain unchanged until policymakers see “substantial progress towards their inflation and employment goals. US yields soared afterwards, offsetting RBA’s Lowe encouraging comments.

Growth signals both shores of the Pacific

On Friday, US Treasury yields continued to rally, but AUD/USD got to bounce, as an upbeat US employment report help Wall Street to recover some ground. The Nonfarm Payrolls report showed that the country added 379K new job positions in February, more than doubling the market’s expectations. The unemployment rate contracted to 6.2% from 6.3%, while the participation rate stayed unchanged at 61.4%. The pair struggles with the 0.7700 level as the week came to an end. Australian data continued to be encouraging. The country manufacturing activity in the country expanded in February, according to the AIG Performance of Manufacturing Index and the Commonwealth Bank Manufacturing PMI. Services output, however, slowed when compared to the previous month but held in expansion territory.

February TD Securities inflation posted 0.1% MoM, below the previous, but the year-on-year comparison reached 1.6%. The Gross Domestic Product in the last quarter of 2020 posted a 3.1% advance, while Retail Sales in January rose a modest 0.5%.

In the US, the official ISM Manufacturing PMI jumped to 60.8 in February, but the services index resulted at 55.3, down from 58.7 previously.

Australia will publish February NAB’s Business Confidence next Tuesday and the NAB’s Business Conditions Index. March Consumer Inflation Expectations will be out on Thursday and is foreseen at 3.5% from 3.7%. The US will publish and update on inflation, as the usual weekly unemployment figures. On Friday, the country will release the preliminary estimate of the March Michigan Consumer Sentiment Index.

 

AUD/USD technical outlook

The weekly chart for the AUD/USD pair shows that the pair is just modestly lower and that the bearish potential is still quite limited. The pair is trading above a still bullish 20 SMA that advances above the larger ones. Technical indicators retreated from intraday highs and head south, but within positive levels and with limited bearish strength.

In the daily chart, the risk has skewed to the downside. The pair has confirmed the break below its 20 SMA, while technical indicators head firmly lower within negative levels. Nevertheless, the longer moving averages maintain their bullish slopes below the current level, providing dynamic support in the case of a steeper decline.

The pair could enter a selling spiral once below 0.7630, heading towards 0.7550. The critical resistance level is 0.7840, as only above it bulls will recover their lead.

AUD/USD sentiment poll

The FXStreet Forecast Poll shows that the AUD/USD pair is set to fall further. Bears dominate the weekly and monthly views, although in both cases, the pair is seen holding above 0.7600. In the quarterly perspective, bulls account for 46% of the polled experts, with the pair seen anyway at 0.7653 on average.

In the Overview chart, moving averages maintain modest bearish slopes, despite most targets accumulate around the current level. The 0.7500 level seems to have become a line in the sand, as most experts expect the pair to remain above it.

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