Australian Dollar fundamental outlook darkens as services sector contracts
Sparse economic docket may see lackluster trading session to end the week
AUD/USDs technical outlook improves but path lower may be hard to break
FRIDAY‘S ASIA-PACIFIC OUTLOOK
Asia-Pacific trade kicked off with downbeat economic data out of Australia. The country’s services sector saw a contraction in growth for July, while manufacturing growth slowed, according to PMI data from IHS Markit. The services sector index fell to 44.2 from 56, and the manufacturing index fell to 56.8 from 58.6. Labor gauges within the PMI surveys remained positive, but a plunge in business activity led the sharp services contraction. The Australian Dollar gave a muted reaction against the Greenback. However, the currency pair is on track to record its fourth weekly loss.
Until recently, the Australian economic recovery was firing on all cylinders, but a new wave of Covid-19 infections—driven by the Delta variant—forced policy makers to reimpose lockdown measures. New South Wales (NSW) recorded 124 cases on Thursday, up from 110 the day prior. Victoria state also saw cases tick higher. The pace will likely lead to an extension of restrictions. This has upended growth prospects, with the lockdowns costing nearly A$300 million per day, according to Treasurer Josh Frydenberg. Junes weak retail sales figure highlights the ill effect lockdowns have on consumption.
Despite the worsening situation in Australia, equity indexes across the region may edge up after US stocks closed mostly higher. Rosy corporate earnings have undergirded broader market sentiment. Still, regionalized risk trends may continue fueling some disparity between stock benchmarks. Hong Kong‘s Hang Seng Index (HSI) remains lower on the week after regulatory fears drove mainland outflows. Meanwhile, China’s tech-heavy CSI 300 index is on track to see a second weekly gain.
Elsewhere, oil benchmarks rose overnight, extending a rebound from earlier this week. Crude oil futures in New York climbed 2.29% Thursday. Energy traders see global supply tightening as demand from the United States and Europe pick up. A rise in weekly US crude oil inventories surprised analysts, but gasoline and other fuel products fell, which supports the rising demand outlook. Meanwhile, China is reportedly releasing oil reserves from its strategic reserve. The move likely aims at cooling off high prices but could also cull Chinese oil imports.
Japan‘s markets will remain closed for a national holiday. Tokyo will officially kick off the Olympic Games on Friday night. Fans are barred from attending the game’s events due to Covid restrictions. Thailand will report trade data for June. The economic docket is otherwise empty, leaving traders looking ahead to next week. Overnight, the European Central Bank (ECB) signaled its dovish policy will stay in place. Next week, the Federal Reserve will release its interest rate decision, when traders expect guidance on taper talks.
AUD/USD TECHNICAL OUTLOOK:
AUD/USD is attempting to extend a rebound from earlier this week when prices dropped to a fresh yearly low. Positive divergence in the Relative Strength Index (RSI) hints that downside energy may be exhausted. That view could be reinforced if the MACD line crosses above the oscillators signal line, which appears likely. A break above the September swing high at 0.7413 could amplify upside movement, with the falling 26-day EMA serving as a possible test above that level. Still, the longer-term trend remains skewed for more downside, which may see traders hit the sell button on strength.
AUD/USD DAILY CHART