Australian Dollar Forecast: Don’t Sleep on the Coiling AUD/USD!

AUD/USD Key Points

Chinese PMI figures were softer than expected over the weekend, weighing on AUD/USD.
The pair remains within its relatively tight consolidation zone below 0.6700, but…
The confluence of fundamental events in the coming weeks sets the stage for a potential breakout.

Traders throughout the Asian-Pacific region have grown used to looking to Chinese economic data as the primary driver for volatility, and this week has been no different for AUD/USD traders.

While we did see a minor economic report out of Australia itself – the Melbourne Institute’s inflation survey came out at +0.3%, in-line with last month’s reading – the more impactful releases came in the form of China’s PMI surveys. The official PMIs came in a tick below expectations at 49.5 and 50.5 for the Manufacturing and Non-Manufacturing surveys respectfully, though the alternative manufacturing reading from Caixin/S&P Global beat expectations at 51.8.

Regardless, the official reading tends to hold more weight for traders as it accounts for large and state-owned companies that play an outsized role in China’s economic growth, leaving the overall interpretation of the data as a slight negative for the world’s second-largest economy…and by extension, the AUD/USD.

Looking ahead, the RBA minutes are on tap in tonight’s Asian session, followed by Australian Retail Sales figures and the Caixin Services PMI reading out of China.

Australian Dollar Technical Analysis: AUD/USD Daily Chart

Source: StoneX, TradingView

As the chart above shows, AUD/USD remains near the middle of its year-to-date range in the mid-0.6600s as we go to press. Indeed, the pair is trading within a tight 120-pip consolidation zone from 0.6575 to 0.6700 dating back to the start of May, presenting little in the way of tradeable trends for anything but the shortest of short-term traders.

Despite the recent lack of a directional trend, the pieces are in place for a potentially higher-volatility breakout. With key central bank meetings from both the Fed and (especially) the RBA as we move through the summer, to say nothing of key jobs and inflation figures on both sides of the Pacific in the interim, it’s unlikely that the current consolidation range below 0.6700 will hold for too much longer. A bearish breakdown at this point would likely expose the 2024 lows near 0.6400, whereas a clean breakout above 0.6700 could have traders eyeing the 1.5-year highs near 0.6900 in short order.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX

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.