By IFCMarkets
The Australian dollar is rebounding after a steep decline following the jump in risk aversion spurred by Brexit. The Reserve Bank of Australia didn’t cut the interest at its June 7 policy meeting, stating strong domestic demand drove economy’s growth in first quarter. Consumer and business sentiment moderated in May. Will the Australian dollar continue strengthening?
The Reserve Bank of Australia (RBA) left the interest rate at 1.75% at its June 7 policy meeting after cutting the rates 0.25 percentage points on May 3 following low inflation and first quarter GDP growth readings. The central bank acknowledged the global economy was growing at a slower than average pace. Australian economy grew due to strong consumption expenditures and exports, which offset falling business investment. The central bank noted that business investments fell because of lower commodity prices as China’s growth slowed down in first quarter. Chinese authorities have stated their commitment to supporting growth in 2016 and commodity prices have recovered from first quarter lows. However China’s growth is expected to moderate further with both June official Manufacturing PMI and Caixin Manufacturing PMI forecast to come in lower on July 1. Recent data indicated consumer confidence moderated in June as Westpac Consumer Confidence Index fell 1.0% to 102.2 from 103.2 in May. The business confidence also moderated in May with the National Australia Bank business confidence index falling from five points in April to three points in May, remaining below the long-term average of six points. These are bearish developments for Australian dollar as growth in private consumption demand is the main driver of Australian GDP and softer consumer confidence points to weaker expected growth. At the same time heightened Brexit concerns boosted US dollar and stronger dollar weigh on Australian currency. Earlier data showed retail sales growth in April slowed to 0.2% from 0.4% in March. On July 5 May retail sales will be released before the RBA releases its interest rate decision.
The AUDUSD has been trading with an upward bias on the daily chart since the beginning of 2016. The price fell 3.7% in two days after Brexit and is rebounding, breaching above the 50-day and 200-day moving averages MA(50) and MA(200). Parabolic indicator gives a sell signal. The Donchian channel is tilted upward, indicating uptrend. The RSI oscillator is edging above the 50 level, but has formed a bearish divergence. The MACD indicator is above the signal line and the gap is falling, which is also a bearish signal. We believe the breaching below the fractal low and lower Donchian bound at 0.73059 channel will signify the resumption of bearish momentum. A pending order to sell can be placed below that level. The stop loss can be placed above the fractal high at 0.76481. After placing the order, the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop loss level without reaching the order, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
| Position | Sell |
| Sell stop | below 0.73059 |
| Stop loss | above 0.76481 |
Market Analysis provided by IFCMarkets