Bearish View
Sell the AUD/USD and add a take-profit at 0.7288.
Add a stop-loss at 0.7400.
Timeline: 1-2 days.
Bullish View
Set a buy-stop at 0.7400 and a take-profit at 0.7500.
Add a stop-loss at 0.7300.
The AUD/USD was little changed in early trading as Australia continued its battle against the new wave of the virus. The pair declined to 0.7346, which was slightly lower than last week’s high of 0.7400.
Australia New Wave
The biggest concern for Australia is that the number of COVID cases is rising, putting heightened risks to the recent recovery. The impact of COVID on the economy was revealed on Friday when Markit published the latest flash Manufacturing and Services PMI numbers. The data showed that the Manufacturing PMI declined from 58.6 in May to 56.8 in June.
In the same period, the Services PMI declined from 56.8 to 44.2. This happened as many service providers like barbershops, salons, restaurants, and bars closed their premises to deal with the virus. New South Wales and Victoria lockdowns also helped push this output substantially lower.
Therefore, there are concerns that the Australian economy will go back to a recession if the lockdowns persist. Some analysts expect that the economy will record a contraction in the third quarter if the lockdowns persist.
Still, some expect the country to emerge from the lockdowns relatively unscathed because of the government’s rescue plan. Further, the fundamentals of the Australian economy are strong, with the household savings ratio being twice pre-pandemic levels.
Some sectors of the economy are also seeing strong demand. For example, the housing sector is expected to keep doing well. In a report today, analysts at NAB said that they expect home prices will rise by more than 7% to 21.6% this year. It expects the prices to ease next year as affordability worsens and the boost from low-interest rates fade.
The AUD/USD will also react to the latest Federal Open Market Commission (FOMC) meeting scheduled for Wednesday this week. The bank is expected to leave rates and QE unchanged.
AUD/USD Technical Forecast
The hourly chart shows that the AUD/USD pair has been struggling recently. It has moved from last week’s high of 0.7398 to the current 0.7346. The pair has also moved below the 23.6% Fibonacci retracement level at 0.7360. It has also fallen below the 25-day and 15-day moving averages while the Relative Strength Index (RSI) has been falling. The Relative Strength Index (RSI) has also declined from the overbought level of 72 to 35. Therefore, the path of least resistance is lower, with the next key stop being at 0.7287.
