The Australian Dollar (AUD) and its path against the US Dollar (USD) have become the topic of intense scrutiny among financial market strategists. UOB Group’s experts, Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia, argue that a prolonged drop in AUD/USD could be in the offing if the pair dives below 0.6280.
Short-Term Predictions: A Hovering High
While yesterday's projections placed the AUD trading range between 0.6300 and 0.6360, actual movement proved a bit more expansive, charting between 0.6324 and 0.6378. With this uptick, there's a hint of increasing momentum for the AUD. Today's predictions suggest that the currency might even challenge the 0.6400 ceiling, although a firm breakthrough seems improbable. Conversely, a slip below 0.6330, with minor support anticipated at 0.6350, could signify an easing of the current gentle ascent.
Medium-Term Outlook: The Precarious Plunge
Reviewing the past week, the AUD's trajectory appeared shaky. With a spot at 0.6365 on 03 Oct, expectations leaned towards a downtrend to 0.6330, possibly even 0.6280. Post reaching a trough at 0.6283 on 04 Oct, the descent's speed was alarming, suggesting an overcorrection without stabilization. UOB's view remains consistent; for the AUD's value to depreciate further, it must decisively break and remain below 0.6280. The 0.6400 mark stands as the sentinel, the breach of which would imply the AUD's recovery from its vulnerability.
Several elements are steering the AUD's trajectory:
- US Influence: The AUD is benefitting from the USD's temporary retreat, sparked by a dip in US Treasury yields. The US Dollar Index (DXY) aims to break its two-day dip, rebounding from an almost year-long zenith.
- Australia’s Financial Health: The recent Financial Stability Review (FSR) by the Reserve Bank of Australia (RBA) is cautious. While global economic turbulence looms large, Australian banks appear resilient, maintaining their ability to support the economy through credit.
- Global Diplomacy: Anticipation surrounds a slated meet between President Biden and Chinese leader Xi Jinping, following their last rendezvous in Bali. This proposed dialogue underscores an attempt to mend and stabilize US-China ties, vital for global economic sentiment.
- RBA's Stance: With inflation and interest rates post-2021 squeezing finances globally, Australia's central bank contemplates a rate hike, hinting at a potential 4.35% climax by year-end. RBA’s new governor, Michele Bullock, stresses the urgency for further monetary policy tightening.
- Labor Market Signals: US's recent jobless claim data points towards an improving employment scenario, hinting at continued labor market tightness.
- Technical Indicators: Presently, the AUD/USD pair is lingering around 0.6370. The 21-day Exponential Moving Average (EMA) might pose resistance near the 0.6400 mark. Beyond this, the 23.6% Fibonacci retracement at the 0.6429 level might be the next hurdle. Conversely, should the AUD falter, the 0.6300 level might act as a cushion, with November's nadir at 0.6272 serving as a further fallback.
On the Horizon
All eyes are on the upcoming US Nonfarm Payrolls and Average Hourly Earnings data. Strong results might bolster the USD, igniting higher volatility in bond markets. Meanwhile, Australia’s Trade Balance showcased an August uplift, reinforcing economic optimism.
