AUD/USD weakens on 0.69 handle ahead of RBA next week

China stocks rise on policy support expectations.
AUD/USD support loosens up despite higher iron ore. 
RBA next week expected to cut rates. 

AUD/USD has slipped o lower levels on the 0.69 handle, down over the next developments in the Sino-U.S. trade dispute. However, we have seen some support coming from the likes of Chinese stocks holding up with expectations of fiscal stimulus.  Shanghai shares were up 1.4% and blue chips were higher by 1.2% on the news that the Premier backs innovation with lower VAT. An additional supporting factor has been the rally in iron ore prices - Australia's biggest export earner. Chinese futures for the ore climbed almost 5% last week to top $100 a tonne.

RBA around the corner

However, next week's RBA meeting is a dominant driving force due to mounting expectations of falling interest rates. Recalling back to last week's noise, Just last week, Governor Philip Lowe said a rate cut would be considered at the next policy meeting on June 4th. "Westpac is now forecasting three cuts in 2019 in June; August and November to push the cash rate from 1.5% to 0.75% and to hold at that level through 2020," said Westpac chief economist Bill Evans. "While back in February we expected the low in the AUD to be $0.68, we have now shaved that forecast back to $0.66 by end 2019," he added. "This forecast is also predicated on our constructive view on commodity prices and a steady U.S. federal funds rate over 2019."

Key U.S. data in focus this week

For the week ahead, U.S. GDP second reading will be a focus, although PCE could make a bigger impact on the market with respect to the Federal Reserve. "We expect a solid 0.2% m/m increase in core PCE prices, which should translate into a steady 1.6% y/y inflation rate with rounding. Risks are skewed to a softer print, in our view," analysts at TD Securities argued. "We look for muted consumer spending after an outsized 0.9% m/m jump in March. The choppiness in the spending data should fade as tight financial conditions and delayed tax refunds recede from view."

AUD/USD levels

Analysts at Commerzbank explained that AUD/USD continues to hold just above the 78.6% Fibonacci retracement at 0.6857 and has risen above the six-week downtrend channel resistance line at 0.6894:

"It thus targets the March low at 0.7004 as well as the 55 day moving average at 0.7051. Further up resistance can be spotted at the 0.7207 February high. A fall and daily chart close below the .6857 78.6% Fibonacci retracement would target the 0.6738 December 2019 low."