Week Ahead: Can AUDUSD stay above 0.660?

• AUDUSD set to post 1.8% climb in June – first monthly gain since January 2023
• Bloomberg’s FX model forecasts trading range of 0.6524 – 0.6732 for AUDUSD in first week of July
• AUDUSD’s presence above/below 0.660 next week could be dictated by China PMIs, RBA decision, FOMC minutes, and US jobs report.

AUDUSD is recovering slightly in recent sessions, despite having it tough so far in 2023.

The “Aussie” has a year-to-date decline of 2.8%, no thanks to the resilient US dollar as well as China’s faltering economic recovery.

Whether or not the “Aussie” can extend its recent recovery into the new month may well depend on the fundamental catalysts contained within the global economic calendar for the coming week:

Monday, July 3

• AUD: Australia June inflation; manufacturing PMI (final)
• CNH: China June Caixin manufacturing PMI
• EUR: Eurozone June manufacturing PMI (final); Germany May trade balance
• GBP: UK June manufacturing PMI (final)
• USD: US June ISM manufacturing

Tuesday, July 4

• AUD: Reserve Bank of Australia rate decision
• EUR: Eurozone April retail sales; Germany April factory orders
• US markets closed for Independence Day

Wednesday, July 5

• AUD: Australia June services PMI (final)
• CNH: China Caixin services and composite PMIs
• EUR: Eurozone May PPI, services PMI (final)
• GBP: UK June services PMI (final)
• USD: FOMC minutes; speech by New York Fed President John Williams

Thursday, July 6

• AUD: Australia May external trade
• EUR: Eurozone May retail sales; Germany May factory orders
• USD: US weekly initial jobless claims; speech by Dallas Fed President Lorie Logan

Friday, July 7

• CNH: China June forex reserves
• EUR: Speech by ECB President Christine Lagarde; Germany May industrial production
• GBP: Speech by BOE policymaker Catherine Mann
• USD: US June nonfarm payrolls
• CAD: Canada June unemployment rate

In determining whether AUDUSD can keep its head above the crucial support 0.660 level next week …

Traders and investors will be casting their sights across 3 countries, namely China, the US, and Australia (of course).

Here are some key events to pay close attention to:

1) July 3rd: China June Caixin manufacturing PMI

Note that the Australian economy is very much reliant on China, being Australia’s largest trading partner.

Hence, when the Chinese Yuan strengthens, the Australian Dollar tends to follow suit.

(AUDUSD has a strong inverse correlation with USDCNY of -0.72 over a 5-day rolling period in the past 10 years)

• AUDUSD may move higher should China’s Caixin manufacturing PMI come in above the 50 mark, which shows expanding conditions in China’s manufacturing sector.
• AUDUSD may move lower should China’s Caixin manufacturing PMI come in below the 50 mark, which would show contracting conditions among factories in the world’s second largest economy.

2) July 4th: Reserve Bank of Australia (RBA) rate decision

The futures market predicts only a 1-in-3 chance that Australia’s central bank will hike by further 25-basis points.

On the other hand, the 27 economists surveyed by Bloomberg are split (13-14) on whether we will see a July RBA hike.

The economists in the “no July hike” camp would point to the latest Australian consumer price index (CPI – which measures headline inflation) of 5.6% for May.

That 5.6% number was below market forecasts for 6.1% and also lower than April’s 6.8% reading.

Should this coming Monday’s (July 3rd) inflation readings by the Melbourne Institute also show easing inflationary pressures, that may bolster the case for another RBA pause at next week’s meeting.

However, note that the RBA surprised markets with unexpected hikes at its past two policy meetings.

For the upcoming RBA decision:

• AUDUSD may move higher if the RBA raises its Cash Rate Target to 4.35%
• AUDUSD may move lower if the RBA leaves rates unchanged at 4.10%

3) July 5th: FOMC June meeting minutes

Recall how the Fed tried to warn markets at that mid-June FOMC meeting about two more incoming rate hikes this year.

Such warnings by Fed Chair Jerome Powell had little initial impact, as markets were willing to challenge the Fed’s forecasts.

However, the economic data since then suggests that the world’s largest economy remains resilient, likely paving the way for the Fed to raise its benchmark rates even higher so as to quell still-stubborn inflation.

• AUDUSD may move higher if the June FOMC meeting minutes reveals a more dovish policy stance held by Fed officials who are adamant that US interest rates have moved high enough and are not willing to risk further economic damage.
• AUDUSD may move lower if the June FOMC meeting minutes reveals a more hawkish policy stance held by Fed officials who are adamant about moving US interest rates even higher.

4) July 7th: US jobs report for June

Markets predict that 200,000 new jobs were added to the US economy in June.

If so, that 200k figure would be the lowest headline nonfarm payrolls (NFP) print since December 2019.

Yet, seasoned market watchers are only too aware that the NFP number has been notoriously hard to predict in recent months, frustrating many top economists.

After all, every single headline NFP number for each month of 2023 so far has exceeded market forecasts. Recall the recent blockbuster NFP print for May (released on June 2nd) which came in at a whopping 339k, far exceeding Wall Street’s forecast of 195k.

The June unemployment rate (also released on Friday, July 7th) is even expected to tick lower to 3.6% compared to May’s 3.7% jobless rate.

Still, with recession alarm bells ringing loudly in certain parts of global financial markets, investors are always looking further down the line and already asking when we will see the first negative NFP print (job losses) and a significantly higher unemployment rate.

• AUDUSD may move higher on a weaker US Dollar if the June NFP report produces a lower-than-200k headline number, along with a higher unemployment rate.
  A weaker-than-expected US jobs report may allow the Fed to start thinking about pausing its rate hikes.
• AUDUSD may move lower on a stronger US Dollar if the June NFP report, yet again, delivers another positive shocker that far exceeds the forecasted 200k print, while the unemployment rate moves lower.
  Another blockbuster US jobs report should force the Fed to hike twice more before 2023 ends.

Key levels

At the time of writing, Bloomberg’s FX model forecasts a 36.7% chance that AUDUSD might break below the 0.66 over the next one-week period.

The model also forecasts a trading range of 0.6524 – 0.6732 for AUDUSD through the first week of July.

Here are some key levels to watch within that forecasted trading range:

POTENTIAL SUPPORT

• 0.6600: psychologically-important level
• 0.65641 – 0.65738: March, May cycle lows
• 0.6524: lower end of Bloomberg model forecasted range; key battleground for bulls and bears in late May/early June.

POTENTIAL RESISTANCE

• 0.66627: June 23rd intraday low
• 100-day SMA
• 0.67255: 23.6% Fibonacci level from AUDUSD’s 1H23 peak-to-trough