Listen to the latest market mood for the AUDUSD pair.

The outlook for the AUD is turning more bearish after its large risk rally higher. Australia’s Treasurer Josh Frydenburg admitted the economy may also be in a recession after the GDP print for Q1 and the projections for Q2. Furthermore, if the AUD keeps rising the RBA may be concerned about having to raise interest rates given the economy may be heading into recessionary territory. If the RBA starts purchase bonds across various maturities the AUD will weaken.

Also, US-China and China-Australia tensions will also weigh on the AUD. With around 30% of all Australia’s GDP coming from China, any tensions with the yuan harm the AUD. This is why the AUD is often traded as a proxy for the yuan. Asset managers as a group are also net short on the AUD, so watch out for any increase in bearishness.

The (DXY) Dollar Index has been falling sharply in recent days and any negative news leaves the DXY vulnerable to a correction.

Technically the AUDUSD is up against a weekly pivot point and a 100EMA on the weekly chart (marked in blue). This looks like a good place to limit risk with stops above. Therefore we expect AUDUSD sellers at the market.

We expect this outlook to play out over the next 2-4 weeks as long as the reasons for the trade remain.

Main Trade Risks

  • The main trade risk is if the risk on tones continues. A very positive NFP print on Friday will boost risk-on sentiment and strengthen AUD.
  • Any positive US-China or China-Australia trade news will also invalidate this outlook.
  • Any strong recovery from Australia’s economy.