AUD/USD weekly outlook: Down, but not out

AUD/USD was lower for a second week as the USD extended its gains as markets lowered bets of 50bp Fed cuts
Still, it was the strongest of the big three commodity currencies, rising against CAD and NZD (with a dovish 50bp RBNZ cut playing a part)
It lost the most ground against the Chinese yuan after Beijing announced high levels of stimulus ahead of the golden week holiday

There is a tonne of China data to chew through this coming week. It’s just a shame not of it will account for much, given none of it doesn’t capture output from the recently announced stimulus. Besides, we’ve already seen outlandish moves from China’s stock markets (40% rally on China A50 in nine days, as one example) so the plethora of backwards-looking data is not likely to make much of an impact on sentiment, or AUD/USD for that matter. Still, the data such as GDP warrants a look for a basic grasp of global growth, and CPI for global inflationary pressures.

New Zealand’s quarterly inflation report is released on Wednesday, and traders will want to see it move closer to 2% to keep hopes of another 50bp cut alive. The 50bp cut delivered at their last meeting was accompanied with a dovish statement which tipped its hat to market pricing, and that means any upside surprise could shake out some Kiwi shorts and AUD/USD could also get a lift along with it.

The ECB are expected to cut their interest rate by 25bp on Thursday. The question is whether this will be coupled with a dovish tone to indicate further cuts. The ECB has a long history of division within the ranks, which leaves the potential for a ‘sell the rumour, buy the fact’ response from euro pairs. If so, EUR/AUD could be in for a bounce. Still, if the ECB deliver a dovish cut, then appetite for risk could get a bump (due to the Fed and ECB being in easing cycles) and that could benefit AUD/USD.

Australia’s employment report on Thursday is the main domestic event for AUD/USD traders. And I suspect it will continue to show the “tight” labour market that is preventing the RBA from having a serious discussion about cuts while inflation remains “too high”. Job growth has averaged 31.9k over the past year and remained above its 1-year average for the past five months. The participation rate also matched its record high while the unemployment rate remained at the non-recessionary level of 4.2%. So, unless these same figures throw a curveball next week, the labour report could be a non-event.

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

Large speculators were net-long AUD/USD for a second week and at their most bullish level since December 2017
Asset managers also flipped to net-long exposure for the first time since February 2023, although at a modest 6.2k contracts
While AUD/USD was lower for a second week, I continue to suspect it will trade higher as we get further into Q4 with seasonality on its side – we just need to wait for the USD rebound to lose steam

AUD/USD technical analysis

I think we could be in for some choppy trade this week for AUD/USD, as it is not a big week for US or AU data and we’ve already seen a decent move lower on the Aussie.

Support was found around the 20 and 100-week (and 100-day) EMAs, 67c handle and monthly S1 pivot. The lower wick of last week shows bears are losing steam. However, the 2-day ‘rebound’ is hardly a compelling bullish signal. I suspect rallies

will be sold this week, as the USD index looks like it wants another crack at breaking above 103.

However, downside potential for AUD/USD could also be limited given we’ve already seen a decent move lower.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.