AUD to USD Forecast: Bears Target Sub-$0.66 on China PMIs

Highlights

• It is a busy start to the week for the AUD/USD, which is licking its wounds from the Friday sell-off.
• Private sector credit numbers will draw interest. However, China NBS private sector PMIs for July will set the tone ahead of the RBA on Tuesday.
• The near-term technical indicators turned bearish, signaling a return to $0.66 on economic divergence.

On Friday, the AUD/USD tumbled by 0.94% to end the day at $0.66457. Softer Australian producer price index numbers and an unexpected slide in retail sales sent the Aussie Dollar south.

This morning, housing credit numbers from Australia will draw interest early in the session. Weak numbers would signal deteriorating housing sector conditions that could give the RBA more reasons to hit the brakes.

However, NBS private sector PMI numbers for China will have more impact. Economists forecast the NBS Manufacturing PMI to rise from 49.0 to 49.2 while expecting the Non-Manufacturing PMI to fall from 53.2 to 52.9.

Economic indicators from China have a material impact on commodity prices. Weak numbers would signal deteriorating macroeconomic conditions, signaling weakening demand for raw materials. The Aussie Dollar is a commodity currency, meaning the Aussie is sensitive to economic indicators from China.

The US Session

It is a quieter US session, with Chicago PMI numbers for July in focus. However, barring a fall to sub-40, investors will likely brush aside the July numbers, with the ISM Manufacturing PMI out on Tuesday.

After softer Core PCE Price Index figures, investors will look for reasons for the Fed to push interest rates higher in September. Employment and prices sub-components of the PMI surveys will influence investor sentiment.

AUD/USD Price Action

Daily Chart

The Daily Chart showed the AUD/USD slide through the $0.6700 – $0.6680 support band (now resistance band) to target the $0.6620 – $0.6600 support band.

The AUD/USD pulled back from the 200-day ($0.67501) and 50-day ($0.67188) EMAs, sending bearish near and longer-term price signals. Significantly, the 50-day EMA pulled back from the 200-day EMA, a bearish price signal.

Looking at the 14-Daily RSI, the 41.64 reading signals a bearish trend and supports a return to sub-$0.66. However, a move through the $0.6700 – $0.6680 resistance band would bring the 50-day EMA ($0.67188) into view.

4-Hourly Chart

Looking at the 4-Hourly Chart, the AUD/USD sits below the $0.6700 – $0.6680 resistance band. The AUD/USD also remains below the 50-day ($0.67428) and 200-day ($0.67295) EMAs, sending bearish near and longer-term price signals.

Significantly, the 50-day EMA narrowed on the 200-day EMA, supporting a return to sub-$0.66. However, a move through the $0.6680 – $0.6700 resistance band would bring the 200-day EMA ($0.67295) and the $0.6729 – $0.6755 resistance band into view.

Looking at the RSI indicator, the 14-4H RSI reading of 32.19 indicates bearish momentum, with selling pressure outweighing buying pressure. The RSI is aligned with the 50-day EMA, supporting a return to sub-$0.66.