AUD/USD: Bears lining up for a trade to 0.6500 or below as major low

• AUD/USD trades at 0.6925, between a range of 0.6912/35.
• AUD/USD bears looking to 0.6500 on RBA cuts.

The Aussie has been on the backfoot since Jan 2018 and is embarking on the lowest levels since January 2016 as the RBA gives clear guidance that next week's meeting is a live meeting to assess as to whether to cut rates again. At the same time, AUD net shorts increased on US/China trade tensions.

However, at the start of this week, the outlook for the AUD was supportive in the near term due to improved risk appetite, US data weakness and a pullback in the greenback. Indeed, the US data from the economic performance has not been as promising of late, raising speculation that a Fed easing is still on the cards. The chance of a Fed rate cut by December, implied by Fed fund futures, remained at 130%. A subsequent correction on the charts took fold, also partly down to due rate cuts already being heavily priced. The pair corrected from a key Fibo level and up through the trend line resistance

RBA outlook

Looking to the RBA, the RBA minutes which emphasised the easing bias and highlighted the focus on the labour market. The RBA Governor's speech which gave the strongest guidance yet that "at [the] meeting in two weeks' time, [they] will consider the case for lower interest rates". Analysts at Westpac are sighting a major low (0.65 or below) for AUD/USD mid to late Q3 assuming the RBA cuts June, G20 sees no trade agreement end June, the next round of tariffs kick in July and the RBA cuts again in August.

U.S. data events this week

While the second reading of Gross Domestic Product is a highlight this week, for the last trading day of this month, U.S. PCE will be a focus and could come as a greater consequence. A solid 0.2% m/m increase in core PCE prices, would support the greenback as it would likely translate into a steady 1.6% y/y inflation rate with rounding. 

AUD/USD levels

Analysts at Commerzbank explained that AUD/USD continues to hold just above the 78.6% Fibonacci retracement at 0.6857 and has risen above the six-week downtrend channel resistance line at 0.6894:

"It thus targets the March low at 0.7004 as well as the 55 day moving average at 0.7051. Further up resistance can be spotted at the 0.7207 February high. A fall and daily chart close below the 0.6857 78.6% Fibonacci retracement would target the 0.6738 December 2019 low."