Home Forex Market Analysis AUDUSD Forecast: Bullish Flag Points to a Bullish Breakout

AUDUSD Forecast: Bullish Flag Points to a Bullish Breakout

AUDUSD Forecast: Bullish Flag Points to a Bullish Breakout

The AUDUSD price was little changed on Tuesday morning after the relatively weak economic numbers from Australia and China. The pair was trading at 0.7300, which was a few pips above last week’s low at 0.7105. 

Australia economy slowing down

After staging a remarkable recovery a few months ago, things have changed for the Australian economy as the number of Covid cases has risen. The total number of daily infections has risen to more than 1,000 per day, forcing some states like New South Wales and Victoria to announce lockdowns.

The impacts of these lockdowns to the Australian economy were seen on Tuesday when the country published relatively weak economic numbers. For example, the number of building approvals in Australia declined by 8.6% in July after falling by 5.5% in June. These approvals have been in the red in the past four straight months, even as housing demand remains steady.

Meanwhile, private house approvals declined by 5.8% in July after falling by 11.8% in the previous month, and credit extended to the private sector also declined from 0.9% to 0.7%. These numbers provide further evidence that the lockdowns are not serving Australia well.

Unfortunately, the situation will continue to worsen in the near term. Indeed, recent numbers like manufacturing and services PMIs, inflation, and retail sales disappointed. As such, the AUDUSD is wavering because this situation will likely push the Reserve Bank of Australia (RBA) to offer more support to the economy. The bank will hold its September meeting next week.

China economy not doing well either

The AUDUSD is also reacting to the relatively weak economic numbers from China. According to China Logistics, the country’s manufacturing PMI declined from 50.4 in July to 50.1 in August. This decline was slightly below the median estimate of 50.2. This is notable since the PMI is approaching the contraction zone of 50.0. 

Indeed, the Chinese non-manufacturing sector has also moved to the contraction zone. This PMI declined to 47.5 from the previous 53.3. As a result, the composite PMI fell from 52.4 to 48.9. The report cited the rising number of Covid cases in the country. At some point, the Chinese government even announced some lockdowns in some parts.

The happenings in China are important for the Australian economy. This is mostly because China buys most of the Australian goods like nickel, iron ore, and copper. Therefore, when the economy weakens, it sends a picture that the Australian economy will be affected. 

Caixin and Markit will publish additional manufacturing and services PMIs numbers from Australia and China on Wednesday.

The next key catalyst for the AUDUSD as the month comes to an end will be the latest US consumer confidence data by the Conference Board. The data is expected to show that confidence declined in August as the country saw more Covid-19 cases.

AUDUSD technical analysis

The hourly chart shows that the AUDUSD pair has been in a strong bullish trend in the past few days. The pair has risen from last week’s low of 0.7100 to 0.7305. Along the way, it has moved above the 25-day moving average and formed a V-shaped recovery. The pair has also formed a bullish flag pattern that is shown in black. Therefore, the pair may keep rising as bulls target the key resistance level at 0.7400. On the flip side, a drop below 0.7260 will invalidate the bullish view.

The AUDUSD hourly price chart


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