AUD/USD Weekly Forecast: Bearish Breakout Hints at Further Downward Slide

AUD/USD Weekly Forecast: Bearish Breakout Hints at Further Downward Slide

● US Federal Reserves hawkish surprise spurred demand for the American currency.

● Upbeat Australian employment figures fell short of twisting RBAs hand.

● AUD/USD turned bearish in the long-term, additional declines expected next week.

The AUD/USD pair has fallen to a fresh 2021 low of 0.7479, holding nearby at the close. The pair lost roughly 200 pips since Monday, the largest weekly decline since September 2020. The catalyst for such a slump was the US Federal Reserve, as the central bank surprised market participants with a hawkish stance.

Fed 1 - RBA 0

Chief Jerome Powell & Co. upwardly reviewed their forecasts on growth and inflation for this year and the next, bringing forward chances of rising rates, as the dot-plot now shows two possible hikes for 2023. Up to now, the Fed has noted that they will react to actual data and not forecasts, but somehow, US policymakers contradicted themself with their latest decision, encouraged by progress in the immunization campaign. Chief Powell said that they are thinking on thinking of tapering but clarified that they would notify it in advance. The least the Fed needs now is to provoke a disruptive financial move.

Meanwhile, the Reserve Bank of Australia released the Minutes of its latest meeting. Policymakers agreed it would be “premature” to consider ending the bond-buying program, repeating that they do not expect a tight labour market and higher inflation until at least 2024. The statement was no surprise but clearly indicated the RBA is far behind the Fed.

Returning to pre-pandemic economic levels

Not all are bad news for the aussie. Australia published May employment figures, which showed that the country added 115,200 positions in May, much better than expected. The Unemployment Rate contracted to 5.1%, returning to pre-pandemic levels, despite the fact that the Participation Rate surged to 66.2%. The country also published the May Westpac Leading Index, which came down to 0.06% from 0.19% in the previous month.

As for the US, data was mostly disappointing. May Retail Sales were down by 1.3% MoM, worse than anticipated, while housing-related data also missed expectations. Initial Jobless Claims for the week ended June 11 jumped to 412K vs an expected decline to 359K.

The Australian macroeconomic calendar will include the preliminary estimate of May Retail Sales and the preliminary June Commonwealth Bank PMIs. The US will publish the final version of its Q1 GDP and PCE inflation and May Durable Goods Orders. On Friday, the focus will be on the countrys May Personal Consumption Expenditures Price Index, previously at 3.6% YoY. The focus will be on Fed Chair Jerome Powell, who will testify before Congress on Tuesday.

AUD/USD technical outlook

Demand for the greenback soared as equities plunged on US taper expectations, the perfect scenario for a bearish AUD/USD. The weekly chart shows that, after over a month of consolidation around it, the pair plummeted below the 20 SMA. Technical indicators head firmly lower within negative levels, currently at their lower levels in a year.

The daily chart shows that the pair has broken below all of its moving averages, accelerating its decline after losing the 200 SMA, now providing dynamic resistance around 0.7550. In the meantime, technical indicators head firmly south despite developing in oversold readings, without signs of bearish exhaustion.

The pair has an immediate support level at 0.7461, the low from December 21. The next relevant level is 0.7395, en route to the 0.7320 region. The 0.7530/50 area provides resistance ahead of 0.7620. Once above the latter, the pair has room to extend its recovery to 0.7700.

AUD/USD Sentiment Poll

According to the FXStreet Forecast Poll, AUD/USD is poised to extend its decline in the near-term, as 62% of the polled experts are bearish, targeting on average 0.7468. Surprisingly, the number of bears shrinks sharply to sub-20% in the monthly and quarterly perspectives, with the pair seen recovering back beyond 0.7600.

The Overview chart shows a strongly bearish moving average in the near-term, but modest declines in the longer ones, as most targets remain accumulated above 0.7700. In the quarterly perspective appeared possible targets sub-0.7000, but the vast majority still bets for a test of the 0.8000 mark.