Fresh headwinds hit the AUDUSD

In an otherwise lacklustre session, one of the main points of interest today has been the release of weaker than expected Australian construction work data for Q2. Thereby, providing another reminder that growth in the Australian economy remains subdued and a warning ahead of next week’s Q2 GDP print.

Specifically, the details of today’s data showed construction work fell by -3.8% in Q2, following a -2.2% fall in Q1. Year on year construction is now down -11.1%. Residential construction fell -5.1%, driven by falls in both apartments and detached, while non-residential fell -7.3%. Based on the sharp decline in building approvals in 2019 and the lags that occur in the construction cycle, another fall in residential construction is likely in Q3.

Ongoing weakness in construction activity remains a key risk to the activity and the employment outlook. It is also a primary reason why the domestic interest rate market has priced in another 25bp interest rate cut from the RBA at its November meeting. Beyond 2019, the market has also priced in a further 25bp rate cut in February 2020, which would take the official cash rate to 0.50%.

Turning to the charts, for the better part of August, the AUDUSD has mostly tread water, buoyed by the formation of two major potential bullish reversal candles. Ominously, on neither occasion has the AUDUSD been able to build on the upside momentum provided by either of these reversal candles. The safety of the AUDUSD’s long-standing trend channel, currently at .6780ish remains out of reach as does the band of key resistance at .6825/35 which comes from the Jan 2016, .6826 low and the June 2019 .6832 low.

In summary, providing the AUDUSD remains below the resistance at .6825/35 the risk remains for the AUDUSD to trade lower towards the next layer of support at .6500c. This level comes from the congestion that occurred during the GFC in 2008 before the AUDUSD traded down to a low of .6007. A break/close below .6675 would provide some confirmation the next leg lower has commenced.

Source Tradingview. The figures stated are as of the 28th of August 2019. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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