Published on Jun 20, 2023

Daily Analysis For AUD/USD 20-06-2023

AUD/USD Analysis

Key Points: -

· In a significant downturn, AUD/USD records its largest daily decline in a month, marking its third consecutive day of losses as it explores the depths of its intraday low.

· While the RBA Minutes strive to defend the surprising hawkish stance on interest rates, they fall short in providing any indications of potential future rate hikes.

· Highlighting short-term drawbacks for Australian employment and the economy, RBA's Bullock points out the negatives.

· Adding to the pressure on this risk-sensitive currency pair are PBoC's rate cut, growing speculations of a hawkish stance from the Federal Reserve, and the uncertain conditions in the market.

Today's Scenario: -

During the early morning hours in Europe, AUD/USD finds itself under bearish pressure, trading around the key level of 0.6800. The currency pair is weighed down not only by the unimpressive RBA Minutes but also by negative updates from the People's Bank of China (PBoC) and concerns regarding the hawkish stance of the US Federal Reserve. It's worth noting that the cautious market sentiment, coupled with a light economic calendar, favors the risk-sensitive pair to record its largest daily loss in a month so far.

The RBA Minutes defend the consecutive second hawkish surprise, suggesting it as a strategy to boost confidence in the return of inflation to normal levels. However, the lack of hints for further rate hikes exerts downward pressure on the AUD/USD price.

In line with this, RBA Deputy Governor Michele Bullock emphasizes that raising interest rates is the only tool available to the RBA to tackle inflation. Nevertheless, she also mentions the need for below-trend growth in employment and the economy for a certain period.

Earlier today, the People's Bank of China (PBoC) lowered its benchmark Loan Prime Rates (LPRs) by 10 basis points (bps), in line with market expectations. Consequently, the one-year LPR decreased from 3.65% to 3.55%, while the five-year LPR now stands at 4.20% compared to the previous reading of 4.30%.

The rate cuts by the PBoC confirm the market's concerns about China's slower economic recovery and the downward revisions in growth forecasts made by top-tier banks such as Goldman Sachs and JP Morgan.

As a result, the AUD/USD has additional factors contributing to its month-long decline and a three-day losing streak.

It's important to note that the monetary policy officials from the European Central Bank (ECB) and the US Federal Reserve (Fed) have adopted a hawkish stance, fueling fears of a global economic slowdown. These concerns, in turn, weigh on market sentiment and the value of the AUD/USD.

Reflecting the prevailing sentiment, S&P500 Futures are experiencing slight losses while yields are rising.

Looking ahead, as the market fully resumes activity, the bearish pressure on AUD/USD is likely to persist due to hopes of a hawkish Fed and the prevailing risk-off sentiment. However, significant attention will be focused on Wednesday's bi-annual Testimony by Fed Chair Jerome Powell, as it may provide clearer guidance for the future.

Diagram of AUD/USD: -

Economic Events: -

Date Event Impact Currency

02:30 (New Zealand) Westpac Consumer Confidence Low NZD

06:45 (China) Loan Prime Rate 1Y Medium CNY

06:45 (China) Loan Prime Rate 5Y Medium CNY

07:00 (Australia) RBA Meeting Minutes High AUD

07:05 (Australia) RBA Kent Speech Medium AUD

09:00 (Australia) RBA Bullock Speech Medium AUD

10:00 (Japan) Industrial Production MoM Low JPY

10:00 (Japan) Industrial Production YoY Low JPY

10:00 (Japan) Capacity Utilization MoM Low JPY

10:30 (Estonia) PPI YoY Low EUR

10:30 (Estonia) PPI MoM Low EUR

10:30 (Finland) Unemployment Rate Low EUR

11:30 (Germany) PPI MoM Medium EUR

11:30 (Germany) PPI YoY Low EUR

11:30 (Switzerland) Balance of Trade Medium CHF

13:30 (Euro Area) Current Account Low EUR

13:30 (Euro Area) Current Account s.a Low EUR

13:30 (Greece) Current Account Low EUR

13:30 (Euro Area) ECB Enria Speech Low EUR

14:30 (Euro Area) Construction Output YoY Low EUR

14:30 (Italy) Current Account Low EUR

14:30 (United Kingdom) 5-Year Treasury Gilt Auction Low GBP

15:00 (Germany) 2-Year Schatz Auction Low EUR

15:30 (Portugal) PPI YoY Low EUR

15:30 (Portugal) PPI MoM Low EUR

15:30 (Luxembourg) Unemployment Rate Low EUR

15:30 (Slovakia) Unemployment Rate Low EUR

16:00 (United States) Fed Bullard Speech Medium USD

17:15 (Euro Area) ECB McCaul Speech Low EUR

18:00 (United States) Housing Starts Medium USD

18:00 (United States) Building Permits High USD

18:00 (United States) Housing Starts MoM Medium USD

18:00 (United States) Building Permits MoM Medium USD

19:00 (Slovenia) Unemployment Rate Low EUR

19:15 (Euro Area) ECB McCaul Speech Low EUR

20:30 (New Zealand) Global Dairy Trade Price Index Low NZD

21:00 (United States) 3-Month Bill Auction Low USD

21:00 (United States) 6-Month Bill Auction Low USD

21:15 (United States) Fed Williams Speech Medium USD

22:30 (El Salvador) Balance of Trade Low USD

22:40 (Euro Area) ECB Guindos Speech High EUR

Buy Scenario: -

The AUD/USD pair is currently experiencing an upward movement within a Rising Channel chart pattern, observed on an hourly timeframe. This pattern indicates that each pullback serves as a buying opportunity. The Australian dollar has tested levels below this pattern but has found support near the horizontal level derived from the high on June 14, which is at 0.6834.

The presence of an upward-sloping 100-period Exponential Moving Average (EMA) at 0.6826 suggests that the overall trend is bullish.

The Relative Strength Index (RSI) (14) is finding support near the 40.00 level. If the RSI moves above 60.00, it would indicate a strengthening of the upside momentum.

A convincing breakthrough above the significant resistance level at 0.6900 would propel the AUD/USD pair towards the high reached on February 16, located at 0.6936, followed by the high recorded on February 7 at 0.6988. Till we do not advise to buy AUD/USD.

Sell Scenario: -

On the downside, if there is a breakdown below the low of June 14 at 0.6756, it would expose the Australian dollar to the high reached on May 2 at 0.6717, and further down to the high registered on May 19 at 0.6675. Till we do not advise to sell AUD/USD.