Since the beginning of 2018, the Australian dollar has depreciated by 6-8% against major counterparts. The currency keeps depreciating and traders are more and more curious about the future tendency.
The analysis of the Commodity Futures Trading Commission (CFTC) displays the net short positioning of the AUD. And it’s clear that shorts of the AUD prevail.
What factors pull the AUD down?
The first and the major reason of the AUD weakness is trade wars. First of all, the Australian dollar is considered as the risky currency. Traders will never invest in such currencies in times of uncertainties. Secondly, the trade war affects the Chinese economy. China is the main trade partner of Australia. Problems in the Chinese economy will affect the trade relations between these two countries.
Furthermore, a risk-off sentiment that pulls the Asian stock market down affects the currency a lot. Any volatility on the stock market is reflected in the depreciation of the currency.
The second reason is the policy of the Reserve Bank of Australia. According to the central bank, the declining Aussie helps improve economic growth, hiring, and wages. Therefore, the rate hike is planned not earlier than in 2019.
The third reason is economic data that are highly volatile and differ from time to time. For example, the last jobs data that were released on October 18 were mixed, as a result, the AUD fell.
What can change the Australian downtrend?
It’s early to talk about the strengthening of the AUD because up to now, there are no crucial fundamental factors that may become drivers for the Australian currency.
If only the USD plunges significantly, the AUD will get a chance to turn the situation in its favor. Moreover, an improvement in the trade disputes may boost the Australian currency. However, there are no clues that these factors will occur soon.
Let’s have a look at the short-term trading
Although the pair keeps trading within the downward channel, it doesn’t mean that the AUD won’t have a chance to rise within the channel.
Events to take into consideration:
Oct. 31: CPI, Trimmed Mean CPI
Oct. 30: CB Consumer Confidence
Moreover, a relief in political and trade issues may improve the investors’ sentiment.
Up to now, the pair has been moving down, however, it still has a long way to the next support. If the pair gains a foothold below 0.7041, it will provoke a further fall to 0.6938. Technical indicators don’t signal an upward move, however, as soon as RSI is below 30 level and the parabolic SAR forms 3 dots above the price, the pair will get a chance to turn around. In the case of positive economic figures and market sentiment, this chance will appear sooner. The important resistance is at 0.7150. The next resistance will lie at 0.7220.
Making a conclusion, we can say that the AUD/USD pair is anticipated to trade within the downward channel, as there are no boosters to break this negative trend for the AUD. However, even within the channel, the pair may move up in case of positive economic data and the development in the market risk sentiment.