Australian Dollar: USD/AUD (AUD=X) forecasts cut at CBA, recovery scrapped, as headwinds mount
ommonwealth Bank of Australia (CBA) has released new forecasts that show the Sydney-based lender no longer expects the Australian Dollar to recover into year-end.
Previous forecasts suggested Australia’s Dollar was due to catch a break in the final quarter of 2019 as the Federal Reserve (Fed) began to cut its interest rate in earnest, enabling other currencies to draw capital away from the mighty and still-dominant greenback, but all of that changed with the August escalation of the U.S-China trade war.
President Donald Trump is expected to begin applying a 10% tariff to all China’s U.S.-bound exports not covered by a punitive levy, although the process won’t be completed until December 15, an outcome that is likely to see the Aussie Dollar remain under pressure.
This has further stoked already-elevated concerns for the Chinese economy and, in turn, the global economic outlook. The trade relationship explains the correlation between the Aussie and China’s Renminbi, as well as why investors tend to view the former as a proxy for the latter. CBA says the Renminbi is likely to weaken even further up ahead, which is one of the reasons they’ve scrapped their projection for an imminent upturn by the Australian Dollar.
“The Chinese economy is now growing at a slower rate because of a slowing in [the] domestic economy, and because of the impact of U.S. tariffs on exports to the U.S.,” says Richard Grace, head of FX strategy at CBA. “USD/CNH has been on an upward trend since the tariffs were first implemented. A further increase in tariffs, or other trade restrictive measures, will generate further upside in USD/CNH beyond our forecasts.”
With a retaliation against the new U.S. tariffs almost inevitable and the prospect of a descent into all-out global economic conflict ever present, markets are now betting the Reserve Bank of Australia (RBA) will cut its interest rate on two more occasions this year, even after minutes from the latest policy meeting suggested this week that it would like to see an “accumulation of evidence” suggesting further assistance for the economy is necessary before acting again.
The RBA has already cut rates twice in 2019, taking the cash rate down to a new record low of 1% and wounding the Aussie in the process, but China is Australia’s largest trade partner and raw materials sold to it are Australia’s largest exports. Demand for those exports could now suffer, at a time when the prices of raw materials are falling due to the deteriorating global growth outlook.
“Our previously published end‑September 2019 forecast of AUD/USD at 0.6800 remains unchanged. But we have lowered our year‑end forecast from 0.7200 to 0.6700 because of the stronger USD, the downward revisions to global economic growth, and because we now expect the RBA to deliver two more interest rate cuts. One in November 2019 and another February 2020,” Grace writes, in a forecast note this week. “Our end‑period low point for AUD/USD is 0.6600 by March 2020.”
Overall, the bias in prices is: Downwards.
By the way, prices are vulnerable to a correction towards 0.69.
The projected upper bound is: 0.68.
The projected lower bound is: 0.67.
The projected closing price is: 0.68.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 23 white candles and 27 black candles for a net of 4 black candles.
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 34.8102. This is not an overbought or oversold reading. The last signal was a buy 12 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 38.50. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 11 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -87. This is not a topping or bottoming area. The last signal was a buy 11 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 5 period(s) ago.
Rex Takasugi – TD Profile
FOREX AUD= closed up 0.000 at 0.676. Volume was 99% below average (consolidating) and Bollinger Bands were 27% narrower than normal.
Open High Low Close Volume___
0.676 0.676 0.675 0.676 583
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 0.68 0.69 0.70
Volatility: 8 8 9
Volume: 65,627 67,219 92,866
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
FOREX AUD= is currently 4.1% below its 200-period moving average and is in an downward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of AUD= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on AUD= and have had this outlook for the last 20 periods.
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