AUD/USD – Rate Cut Expectation Increases as Economic Numbers Miss Mark

Despite USD weakening significantly yesterday due to a slightly dovish FOMC rate decision, AUD/USD continued to push lower, with price hitting a low of 0.8926 towards the end of US trading session. Price rebounded higher slightly when Tokyo started trading, but the rally wasn’t spectacular to begin with, and was aided by a slightly better than expected Chinese Official Manufacturing PMI which came in at 50.3 versus a 49.8 expected. The resultant push only served to reaffirm the descending Channel’s relevance on current price action, with price straddling the underside of Channel Top lower.

There are good reasons why price is bearish though. Firstly, the Chinese Official PMI numbers are highly suspicious considering the degree of accelerated slowdown seen in China recently. Furthermore, the HSBC manufacturing numbers are actually showing accelerated decline, in line with other economic numbers, making the official numbers look even more dubious. Hence it is not surprising to see market ignoring the “better” numbers, and allowing AUD/USD to slide lower. All is not well within Australian shores either. AiG Performance of Manufacturing Index came in at 42.0 versus previous month’s 49.6, while both Export and Import Price index fell as well amidst expectations of 0.3% and 2.0% growth respectively. All these drove expectations for a rate cut during RBA’s next decision higher. Credit Suisse’s OIS is currently pricing in a 97% probability that RBA will proceed with a 25 bps rate cut in August, a jump from last week’s 70+%. All these highlights the extreme bearishness the market is in right now. And implies that AUD/USD will continue to head lower even if USD weakens this Thursday or Friday should ISM Manufacturing or NFP numbers drive USD lower.

Hourly Chart

From a technical perspective, stochastic readings is currently around the peaks seen recently. Hence a move lower from here will not be too surprising especially since readings have crossed the Signal line and is pointing to the downside, with price facing continued resistance from Channel Top.

Daily Chart

Daily Chart shows 3 Black Crows Pattern forming just when price breaches the 90.0 support, which incidentally is close to the previous 2013 low formed back on 13th July. Furthermore, price is trading back into the descending channel, which opens up Channel Bottom as the next bearish target. However, Stochastic readings is showing signs of Oversold, which may impede further bearish movements. However, given that sentiment on AUD/USD is extremely bearish, counter-trend signals should be taken with an extreme pinch of salt. Furthermore, the bullish cycle signal from stochastic is far from being formed, with readings needing to clear the 20.0 mark, which will most likely line up with a price push of above 0.90 or 0.91 even, in order to form the signal. Nonetheless, given that USD weakness may be coming our way with the aforementioned big heavy hitter news – ISM Manufacturing and NFP, there is the off chance that sudden USD weakness may send AUD/USD higher in the short-term. This may be good in the long run for bears actually, as the increase in prices is most likely temporary and provide good prices for long-term bears to short into. From a technical perspective, this may provide some slack for the currently oversold stochastic, and allow price to continue heading lower before a more significant pullback comes in.

More Links:
USD/SGD Technicals – Supported by 1.27 Round Figure
GBP/USD – Drops Down Through 1.52 to Two Week Low
EUR/USD – Places Pressure on Resistance at 1.33 Again

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