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Big test for the AUD this week

The AUD is likely to be tested this week with the fundamentals finally starting to show real signs of strain. 

AUD
Source: Bloomberg

While the statement of monetary policy was largely ignored on Friday as investors focused on geopolitical concerns, this week is likely to see a return to fundamentally-driven moves. The highlight from the statement was that the RBA expects the unemployment rate to remain elevated before it gradually declines in 2016. Analysts feel that due to the strong link between jobs and rates, we are set for a prolonged period of stable rates with a slight chance of a cut. Weakness in jobs also ties in with poor wage growth to give an all up downside impact on the AUD.

Following Thursday’s disappointing jobs data, there will be a particular interest in Wednesday’s Q2 labour cost data. Should wage growth remain at historical lows, there will be further fears of disinflation and this will only play into the hands of the doves.

Also on the local calendar will be NAB business confidence and Westpac consumer sentiment. Mid-week, emerging markets will also focus on more China data with industrial production, new loans and fixed asset investment being the key readings to look out for.

Selling on strength

From a price action perspective, perhaps selling into strength is the preferred strategy. The general reasoning behind this is we are seeing a slight recovery in risk sentiment to start off the week. This could broadly push the risk currencies higher to start off the week. Having said that, there is resistance in the 0.933 region and that will be a potential sell zone this week. That level is also where the 100-day moving average comes in. Potential targets will be initially to 0.9200.

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