Australian Dollar Forecast: AUD/USD Eyes Retail Sales After Geopolitical Shock

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Australian Dollar, AUD/USD, Kabul, Retail Sales, RBA, FED – Talking Points

  • Afghanistan attack sends geopolitical shock through markets
  • Australian retail sales on deck for today’s economic docket
  • AUD/USD ends rebound on Bearish Engulfing candlestick

Friday’s Asia-Pacific Outlook

The risk-sensitive Australian Dollar broke a 3-day winning streak versus the US Dollar after an attack in Kabul left dozens dead, including twelve US service members. The event sent a geopolitical shockwave through financial markets, ending a broad risk-on rally that saw US equity indexes and commodities surge. The tech-heavy Nasdaq 100 index moved 0.59% lower in the New York trading session.

Haven flows aided USD strength, but also hawkish talk from several Federal Reserve members. On Thursday, Dallas Fed President Robert Kaplan justified support for balance sheet tapering. St. Louis Fed President Jim Bullard and Kansas City Fed President Esther George joined Bullard to form the hawkish choir.

Australia’s preliminary July retail sales report will likely serve as today’s primary potential event risk. Analysts expect the month-over-month figure to cross the wires at -2.5%, according to a Bloomberg survey. That would mark the second consecutive down month for the closely-watched data print. The downbeat consensus comes amid ongoing lockdowns across Australia as Covid cases continue to rise at an alarming pace.

The Australian Dollar is on track to close this month out with a loss against the Greenback, which will mark the third consecutive monthly drop for the major currency pair. Aussie Dollar traders’ rosy view on the Australian economy wilted back in June as the highly transmissible Delta Covid variant outmaneuvered the government’s strict containment approach.

The economic costs have eaten into RBA policy tightening bets. Next month’s policy meeting may see a move to suspend a planned tapering of its balance sheet. Meanwhile, the Fed appears on course to announce tapering its own balance sheet next month, although that may come as soon as this weekend when Fed Chair Powell speaks from Jackson Hole.

AUD/USD Technical Outlook:

A Bearish Engulfing candlestick marked AUD/USD’s recent downturn, along with resistance from the 61.8% Fibonacci retracement. Downside momentum may increase with the MACD line nearing a cross below the oscillator’s center line, a bearish signal. That said, the 38.2% Fib may provide support if prices continue to drop. Alternatively, a rebound may face resistance at the 61.8% Fib again on an upside move.

AUD/USD2-Hour Chart

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Chart created with TradingView

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— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

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