Will AUD/USD Resume the Downtrend Next Week?

AUD/USD tumbled more than 2% lower last week as the downtrend resumed due to the USD strengthening, which was prompted by the perception of a more hawkish FED as the US economy shows improvement. However, the Australian economy exhibited some underlying strength as well towards the end of last year and in the early months of 2023, as shown by recently released domestic data.

In Q4, the current account surplus was recorded at AUD 14.1 billion, much higher than the forecast at AUD 5.5 billion and the Q3 was revised up from AUD -2.3 billion to AUD 0.8 billion. Besides that, month-on-month retail sales for January rose by 1.9%, exceeding the anticipated 1.5%, and an improvement from the previous month’s decline of 4.0%.

That was one of the reasons that the AUD remained sideways this week, while the other reason was the uncertainty in the USD. Although, now the 50 SMA has caught up with the price. This moving average has been acting as resistance on the H4 chart, and should send it lower again.

ISM Services PMI Index for February 2023

• Services PMI index 55.1 versus 54.5 estimate. Prior month 55.2
• employment index 54.0 versus 49.8 expected. Prior 50.0
• new orders index 62.6 versus 58.5 expected. Prior 60.4
• prices paid index 65.6 versus 64.5 expected. Prior 67.8
• new export orders 61.7 versus 59.0 last month
• imports 52.6 versus 53.0 last month
• backlog of orders 52.8 versus 52.9 last month
• inventories 50.6 versus 49.2 last month
• supplier deliveries 47.6 versus 50.0 last month
• inventory sentiment 55.3 versus 55.8 last month
• Full report

The strong jump in new orders stands out. Prices cooled, but not much and perhaps not enough. Without knowing any of the context, you would look at this report and see a strong economy that’s picking up. The US dollar is stronger on the report, understandably.

Comments in the report:

• “Sales activity is generally strong, despite economic headwinds.” [Accommodation & Food Services]
• “Activity is steady. Costs continue to escalate, eliminating any profit we had hoped for in the first and second quarters.” [Construction]
• “There is some slight improvement in availability and delivery turns.” [Educational Services]
• “Upward pricing pressures have eased slightly but are still elevated.” [Finance & Insurance]
• “Inflation, though somewhat eased from the peaks of the past six months, continues to drive higher-pricing demands from suppliers. Hospital volumes are improving but have not returned to pre-pandemic levels in all cases.” [Health Care & Social Assistance]
• “The current dynamics in the marketplace are such that it is getting harder to reduce costs. Most industries are being pinched by inflation and more expensive labor markets. Before, cost reduction was the goal; it’s now cost avoidance. That said, since we’re not able to reduce cost to maintain margins, we have to reduce the employee base more aggressively to achieve margins.” [Information]
• “Seeing a slow decline in activity, but not a collapse like in 2009.” [Management of Companies & Support Services]
• “Generally flat activity level.” [Mining]
• “Starting the new business cycle with a noticeable uptick in demand.” [Professional, Scientific & Technical Services]
• “Continual effort to right-size inventory to match lower sales forecasts for the coming year.” [Retail Trade]
• “The electric utility industry has seen some improvement on lead times and availability in some categories, but there are still issues with conductors, connectors, rubber-molded items and transformers.” [Utilities]
• “Business activity has improved slightly compared to last month. Supplier deliveries are faster, and fill rates from manufacturers seem to be stabilizing. Customers now are very cost conscious and looking for lower-priced product options.” [Wholesale Trade]

AUD/USD