[Cancelled without entry] Seizing Opportunities Amidst the Turbulence
Tuesday, August 20, Week 34
The Australian dollar has been on a volatile ride in recent weeks, influenced by a confluence of domestic and global factors. The currency pair's sensitivity to commodity prices, particularly iron ore, has been amplified by China's economic slowdown and the uncertainty surrounding the Federal Reserve's monetary policy path.
The near-term outlook for AUD/USD is for potential dips, driven by risk aversion and expectations of Fed rate cuts, creating an opportunity to buy the pair at a more favourable level. In this context, the near term is defined as a five-day outlook, the short term as a five-week outlook, the mid-term as a five-month outlook, and the long term as a five-year outlook.
A Currency Driven by Commodities and Global Growth
The AUD/USD is positively correlated with commodity prices, with the Australian dollar typically strengthening during periods of rising commodity prices, which also tend to support the Australian stock market and, to a lesser extent, bond yields. Conversely, a decline in commodity prices, often associated with a global economic slowdown, can weigh on the AUD/USD, leading to a depreciation of the Australian dollar.
Trading involves a possibility of losing money therefore all decisions in market speculation are undertaken at your own financial risk.
Riding the Waves of Volatility
The five-day price trend of the AUD/USD has been an uptrend, with the pair appreciating from 0.6684 on August 15th to 0.6735 on August 19th. This upward momentum is likely driven by a combination of short-covering and bargain hunting, as the pair retraced from recent lows.
The five-week price trend of the AUD/USD has been volatile, with the pair initially depreciating from 0.67670 on July 15th to a low of 0.65410 on August 1st, before rebounding to 0.6735 on August 19th. This volatility reflects the uncertainty surrounding the global economic outlook and the Federal Reserve's monetary policy path.
The trigger event for the initial depreciation was the release of weaker-than-expected US jobs data, which fueled expectations of a more aggressive Fed rate cut cycle. The subsequent rebound was driven by a combination of short-covering and bargain hunting, as well as a reassessment of the Fed's policy outlook.
Upcoming market events that could trigger a market dip include a more hawkish than expected speech by Fed Chair Powell at the Jackson Hole Economic Symposium (Thursday, August 23, Week 34) or weaker-than-expected Australian economic data, such as the release of the June quarter National Accounts (Wednesday, September 4, Week 36).
The six-month price trend of the AUD/USD has been volatile, reflecting the uncertainty surrounding the global economic outlook, the Federal Reserve's monetary policy path, and China's economic slowdown. The pair has traded in a range between 0.641 and 0.678, with no clear directional bias. The trigger event for the initial depreciation was the release of weaker-than-expected Chinese economic data in February, which fueled concerns about a slowdown in global growth. The subsequent appreciation was driven by a combination of short-covering and bargain hunting, as well as a reassessment of the Chinese economic outlook.
The conviction level is moderate that the five-week uptrend will continue in the short-term, as the pair remains supported by expectations of a Fed rate cut cycle and a potential recovery in Chinese economic growth. However, the uncertainty surrounding these factors suggests that a break in the trend is also possible.
Upcoming Pivotal Events
Jackson Hole Economic Symposium (Thursday-Friday, August 23, Week 34): Fed Chair Powell's speech at the Jackson Hole Economic Symposium is a key event that could offer clues about the Fed's outlook and policy intentions. A hawkish tone could strengthen the USD and weigh on the AUD/USD, while a dovish tone could weaken the USD and support the pair.
US Non-Farm Payrolls (Thursday, September 5, Week 36): The release of the US Non-Farm Payrolls report is a key indicator of labour market conditions and wage growth in the US. A strong report could support the USD and weigh on the AUD/USD, while a weak report could weaken the USD and support the pair.
Seizing the Dip
Potential dips in the AUD/USD market during the near-term could be driven by a combination of risk aversion and a stronger USD, particularly if Fed Chair Powell delivers a more hawkish than expected speech at the Jackson Hole Economic Symposium. This could be traded in favour of the trade plan to buy the AUD/USD by using a limit order to enter the market at a more favourable level.
The thesis for buying the AUD/USD is based on the expectation that the pair will appreciate in the mid-term, driven by a potential recovery in Chinese economic growth, a Fed rate cut cycle, and a narrowing of interest rate differentials between Australia and the US. The conviction level is moderate, as the outlook for these factors remains uncertain.
Entry level: 0.662
Exit level: 0.642
Potential profit level (near-term): 0.672
Potential profit level (short-term): 0.682
Charting a Course Through Volatility
The AUD/USD has been on a volatile ride in recent weeks, influenced by a confluence of domestic and global factors.
The near-term outlook is for potential dips, driven by risk aversion and expectations of Fed rate cuts, creating an opportunity to buy the pair at a more favourable level.
The mid-term outlook is for a potential appreciation, driven by a potential recovery in Chinese economic growth, a Fed rate cut cycle, and a narrowing of interest rate differentials between Australia and the US.
However, the uncertainty surrounding these factors suggests that a break in the trend is also possible.
Key takeaways for forex traders include closely monitoring upcoming economic data releases, central bank announcements, and geopolitical developments, as these will have implications for the AUD/USD.
Sources
Reserve Bank of Australia
Australian Bureau of Statistics
Australian Government Budget Papers
Trading Economics
Westpac Banking Corporation
Melbourne Institute
National Australia Bank
S&P Global
Australian Industry Group
CoreLogic