The Pair Slightly Bid Ahead Of Australia’s MYEFO And Lower Deficit Forecasts.
AUD/USD is bid with the ongoing session after both the Australia MYEFO and the Government witnessed deficit of A$36.5 billion on 2016/17.
The significant budget deficit for this year is likely smaller compared with the previous estimated budget in May, in which markets have seen this as an opportunity as the rating agencies might maintain a score of AAA for Australia.
Subsequently, the trend remained lower on the back of the strengthening dollar and the Fed’s hawkish tone.
AUD/USD LevelsIf the pair will break down below the May low at 0.7146, a potential downside risk is expected. Thus, certain analysts at Westpac offered the pair in a 1-3 month:
“We suspect that the US interest rate story was the main driver, and there continues to be lingering suspicions that the Reserve Bank of Australia may have to cut interest rates again next year. However, the move has been large and pushed the Aussie beyond its lower Bollinger Band®. (~$0.7325). A move back to it may provide a better opportunity to position with the trend. Our next target is the May low near $0.7145. In the big picture, the advance by the Aussie from March through the middle of November was some kind of correction and now the downtrend has resumed. We look for a return to $0.6830 low from early this year,” explained analysts at Brown Brothers Harriman.
Aussie at 6-month LowThe Australian dollar opened at fresh-week low of 73 cent level, leaving it at lows not seen in over six months.
The weakening Aussie was followed by a significant move on Friday after the pair sharply slipped at .7260 on the back of renewed geopolitical concern in the South China Sea.
Meanwhile, China detained an underwater US drone, which sent the markets to wobble and weighed down on the Aussie and Kiwi dollars.
Evidently, the US bond yields and the US dollar found support with most of the US Federal Reserve members’ hawkish remarks.
Analysts’ RecommendationAUD/USD declined 250 basis points last week as the pair stood at 0.73 line at the close. In essence, the markets await only four events for this week. Hence, here are some of the outlook on the major market-movers.
The Fed raised the interest rates at a quarter point, but only the second rate hike since financial crisis fall in 2008. The Fed’s remark was hawkish in its rate decision and upgraded its hike estimate for 2017.
Given a hawkish tone, the US dollar was sent rallying, but the Australian currency sharply declined. Moreover, the US retail sales missed the analysts’ estimates, while the US CPI stood at about 0.2%, matching the forecast.
Current Stance of AUD/USD PairThe chart below illustrates AUD/USD price movement amid the Federal Reserve members’ hawkish remark, which added an optimism in the markets.
Given a bearish tone of the pair, market participants have begun selling riskier currencies as it is widely expected that the Federal Reserve’s hawkish decision would bring opportunities for investors.
Further, the pair break out on the downside below resistance 0.72887 in a light trading volume.
AUD/USD Hour Chart
ConclusionAs the illustrative chart above shows a bearish tone of the pair, market participants are recommended to still wait on the sidelines as there aren’t any supporting candle present as of writing.