AUD/USD – Touching below 0.89 briefly ahead of NFP

More bad news for Australia’s economy. Growth in Produce Price Index is also showing signs of slowdown, with Y/Y falling from 1.6% to 1.2%, while Q/Q falling from 0.3% to 0.1%. Certainly this is not a bad print, and does not necessarily mean that Australia’s economy is going to collapse, but if we put this together with the rest of the economic indicators, there is a very strong coherent sign that the economy is not as robust as before. Couple this together with the slowdown in Chinese economy, the situation is definitely looking dire for Australia.

Hence it should be no surprise to see AUD/USD trading to a fresh 2013 low again. Price dipped below 89.0 briefly this morning after the PPI numbers were released as the lower inflation from producer prices suggest that scope for RBA rate cut can be widen again. But to be honest, with such a long chain of bearish economic numbers coming forth from the southern hemisphere nation, the scope is already as wide as it can get. Market expectation for a rate cut during next Tuesday’s Rate Decision is already above 90% (using Credit Suisse Overnight Index Swap), suggesting that most of the speculators should have already priced in the scenario for an RBA rate cut. Therefore, the sharp decline this morning on the back of the generally inconsequential Producer Price Index can be regarded as bearish traders simply looking for reasons to sell.

Hourly Chart

From a technical perspective, price is currently trading below the Channel Top (a different channel from charts of previous day’s analysis). Strangely, despite the strong bearish sentiment that AUD/USD has been going through, the price has not really seen any strong bearish acceleration, but rather push meekly lower consistently. Perhaps the issue here is that we’ve not seen any significant bullish pullback. As such, we do not see any re-entry of bearish positions as all the bearish traders may have already maxed out their positions. Without any pullbacks to trigger stops, or at least scare bearish traders to close their positions, we could potentially only see slight decrease in AUD/USD prices brought about by new bearish traders coming into the fray. This may actually mean that an actual RBA rate cut may have very little bearish follow-through, and the possibility of “buy the rumor sell the news” (or in this case sell the rumor buy the news) increases.

Daily Chart

Looking at Daily Chart, price appears to be oversold as well. As such, a pullback is definitely welcomed, and may allow price to accelerate towards Channel Bottom. Any pullback can expect resistance in the form of Channel Top, failing which the 0.90 round figure will provide further resistance. In the event of price capitulating following a RBA rate cut, price will find support from Channel Bottom and the inevitable pullback may see prices pushing towards Channel Top once again. This may be possible if RBA slash rate by 50bps instead of the expected 25bps, but even so, given that price is already extended both on long and short-term, do not automatically assume that price will be able to hit 80.0 in one fell swoop. The converse is true as well, any rebound higher should be regarded as corrective and we will need to see stronger fundamentals together with good technical signals to affirm a longer-term bull trend for AUD/USD once again.

More Links:
GBP/USD – Pound Steady as UK & US Post Strong Numbers
USD/CAD – Higher as US Posts Strong Data
USD/JPY – Dollar Climbs Close to 99 After Fed Statement

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