AUD/USD Forecast: AU GDP, US PMIs and NFP on tap

• The Australian dollar fell against all major currencies except the New Zealand dollar last week
• AUD/USD has fallen for six consecutive days, its most bearish sequence since July
• The likely rollout of US tariffs, failed peace talks for Ukraine, stronger US dollar and weaker yuan were all key drivers behind AUD/USD’s demise
• RBA minutes, Australian GDP, US PMIs and Nonfarm Payroll reports are the key economic events for AUD/USD traders this week

 

 

Headline US inflation data came in as expected on Friday, with core PCE rising to 0.3% m/m from 0.2%, yet slowing to 2.6% y/y from 2.9%. Yet personal income was unexpectedly hot at 1-year high of 0.9% m/m, while consumption was its weakest in nearly 2 years at -0.2% - presumably due to concerns over incoming tariffs. Fed fund futures are placing a 57% probability of June cut, although the US dollar remained bid on Friday after beginning its bounce from a key support level ~106 on Monday, and went on to snap a 3-week losing streak.

                                                                                         

The RBA minutes released on Tuesday might shed some more light on the RBA’s 25bp cut in February. If there is anything to clean from the minutes, it could be the appetite for another cut sooner than later. Although as I noted in my instant reaction video, while the RBA kept the door open for further cuts (from H2 according to their own forecasts), they also allowed plenty of wriggle room to do nothing. I doubt they’ll have the appetite to cut at their next meeting on April 2^nd, or in May – as it likely lands on the month of the Federal election. So that leaves July as a likely contender for another 25bp cut in my view. RBA cash rate futures have fully priced in a cut for July, whereas a May cut sits at 40%.

 

That said, a weak Australian GDP report could bring forward bets of another 25bp RBA cut. Very shortly we will see ‘net exports contribution’ to GDP, which is expected to shave 0.1% of the headline growth rate. Company profits will also be released (which have been negative for the past two quarters) alongside quarterly retail sales figures for Q4. All of which could set the stage and see big 4 banks revise their GDP estimates ahead of Wednesday’s release. Currently the consensus is for Australia’s GDP to have risen 0.5% q/q in Q4 (up from 0.3%) or 1.2% y/y (up from 0.8%).

 

4

 

Tariffs are set to be rolled out this week on Canada, Mexico and China. Unless a surprise deal is struck, it seems unlikely that AUD/USD traders will be treated to a risk-on bounce. Traders should also keep an ear out for tariffs in Europe as it will shape expectations for how serious the Trump administration will be for putting America first. At this stage, they appear to be quite serious.

 

ISM and S&P Global PMIs alongside Nonfarm Payrolls are the main calendar events from the US. We also have some FOMC members speaking, although what they say will be dictated by the data anyway. Given the surprise contraction in the S&P Global services PMI, we’re all intrigued to see if the ISM counterpart follows suit. But if we see US data weaken in general to justify a Fed cut (particularly employment numbers), I doubt it will result in a risk-on bounce for AUD/USD like we would have seen recently. As I believe we’re at or near the stage where bad data is bad, and ring recessionary bells for the US and rest of world, which could be negative for AUD/USD.

 

 

AUD/USD correlations:

 

AUD/USD futures – market positioning from the COT report:

While large speculators reduced their net-short exposure for a third week and increased longs for a sixth, the bearish price action on AUD/USD shows these traders were caught off guard. Asset managers meanwhile increased their net-short exposure for a second week.

 

Given it was the worst week in 20 months for AUD/USD, asset managers were clearly on the money with their bets. And it seems likely that AUD/USD could remain on the ropes given the severity of last week’s selloff, with traders paying increasing attention to any weakness of incoming data.

 

AUD/USD technical analysis

I was correct in thinking that AUD/USD would retrace lower last week after a 3-week rally, but wrong in thinking it could find support. Instead, AUD/USD traded lower every day last week, to mark its first six-day decline since July.

 

Its -2.4% decline marks its worst week in June 2023, and means traders may seek to fade into minor corrective rallies with January low now in focus. Which, incidentally, is near the lower 1-week implied volatility band.

 

The 0.6087 low is significant as it marks the moment Trump decided to delay the much-feared tariffs on Canada and Mexico by one month. It is therefore a level I doubt will break instantly. But it is a level that could be broken if Australia’s GDP misses the mark and NFP and ISM reports pump out weak figures to ring the global-recessionary bells.

 

However, given the 6-day decline and oversold RSI (2) by Friday’s close, a cheeky bounce seems plausible. Bears could seek to fade into moves up to the 0.6200 area, near the weekly pivot point, Oct 2022 / 2023 low and upper 1-week IV band.

 

 

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

 

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