AUD to USD Forecast: Bears Target Sub-$0.65 on Services PMIs

Highlights

• It is a busy Thursday session for the AUD/USD, with Australian trade data and service sector PMIs from Australia and China in focus early in the day.
• However, US jobless claims and the all-important ISM Non-Manufacturing PMI will have the final say.
• The near-term technical indicators remained bearish, signaling a return to sub-$0.66.

On Wednesday, the AUD to USD fell by 1.13% to end the day at $0.65382. Risk aversion weighed on the Aussie as investors considered the US sovereign rating downgrade, disappointing stimulus from Beijing, and the global macroeconomic environment.

Australian trade data will draw interest this morning, with the markets searching for an AUD/USD bottom. Economists forecast the trade surplus to narrow from A$11.701 billion to A$11.250 billion.

While the headline trade balance will influence, the devil will be in the details. The latest manufacturing PMI numbers suggest waning global demand. A slump in exports and imports would fuel recessionary jitters.

The Australian trade – GDP ratio stood at 45.8% in 2019 before declining as global trade terms deteriorated. As an exporter of commodities, weak global demand would adversely affect the Australian trade balance, the Australian economy, and, therefore, the Aussie dollar. Importantly, trade provides circa 20% of Australian jobs, a material consideration for the RBA.

The US Session

It is a busy US session, with US initial jobless claims and the all-important ISM Non-Manufacturing PMI in focus. Economists forecast the ISM Non-Manufacturing PMI to fall from 53.9 to 53.0. However, investors must consider the sub-components. These include employment, new business, and prices.

The US services sector accounts for more than 70% of the US economy, making the ISM Non-Manufacturing PMI a leading indicator. Weakening service sector activity would fuel recessionary jitters. The early signs of waning service sector activity include lower staffing levels, declining new orders, and weaker output prices. Increased competition for new work leads to falling output prices.

Other stats include finalized Markit survey-based service PMI, nonfarm productivity, unit labor costs, and factory orders. However, these stats should play second fiddle to the initial jobless claims and ISM survey-based numbers.

AUD/USD Price Action

Daily Chart

The Daily Chart showed the AUD/USD tumbled through the $0.6620 – $0.6600 support band to test the lower level of the $0.6545 – $0.6526 support band as risk aversion swept across the global financial markets.

After the Wednesday loss, the AUD to USD remained below the 50-day ($0.67012) and 200-day ($0.67443) EMAs, sending bearish near and longer-term price signals. The 50-day EMA fell back from the 200-day EMA, sending bearish price signals.

Looking at the 14-Daily RSI, the 36.79 reading signals a bearish trend and supports a fall through the 0.6545 – 0.6526 support band to target sub-$0.65. However, an AUD/USD move through the $0.6620 – $0.6600 support band would give the bulls a run at $0.6650.

4-Hourly Chart

Looking at the 4-Hourly Chart, the AUD/USD sits within the $0.6545 – $0.6526 support band. The AUD/USD also remains below the 50-day ($0.66775) and 200-day ($0.67122) EMAs, sending bearish near and longer-term price signals.

Significantly, the 50-day EMA pulled further back from the 200-day EMA after the Tuesday bearish cross, supporting a fall through the $0.6545 – $0.6526 support band to bring sub-$0.65 into play. However, an AUD/USD move through the $0.6545 – $0.6526 support band would give the bulls a run at the $0.6600 – $0.6620 support band and $0.6650.

Looking at the RSI indicator, the 14-4H RSI reading of 25.34 shows the AUD/USD in oversold territory, with selling pressure outweighing buying pressure. However, the RSI aligns with the EMAs, signaling a fall through the $0.6545 – $0.6526 support band to target sub-$0.65.