US Ratings Downgrade Burns Pro-Growth Aussie

AUD/USD & AUD/NZD ANALYSIS & TALKING POINTS

• Ratings downgrade favors low risk USD.
• ADP employment change in focus today.
• Double top neckline breach on daily AUD/USD.

AUSTRALIAN DOLLAR FUNDAMENTAL BACKDROP

The Australian dollar’s pain has been increasing against the US dollar after ratings agency Fitch downgraded US debt to AA+ from a AAA rating. This follows on from the Standard and Poor’s downgrade previously. Unusually, markets demand for US Treasuries intensified despite the downgrade while the safe haven attribute of the greenback sustained USD upside.

Earlier this morning, New Zealand labor data (see economic calendar below) showed some signs of easing which should keep the Reserve Bank of New Zealand (RBNZ) steady on their cycle. Unemployment pushed higher alongside lower wage growth, potentially lowering core inflation pressures that have been quite sticky. AUD/NZD rallied on this data despite the Reserve Bank of Australia (RBA)’s decision to hold rates yesterday. Money market pricing still shows the possibility of another RBA hike but recent repricing has significantly reduced this probability. Incoming data will determine the future rate trajectory.

Later today, US ADP employment change for July will dominate headlines with estimates significantly lower than the prior print. Should actual numbers come in line with forecasts, there may be a drop off in the USD but the data should not be relied upon as a gauge for Non-Farm Payroll (NFP) data on Friday. The lack of congruency recently will leave markets hesitant ahead of Friday’s release but yesterday miss on US ISM Manufacturing Employment could hint at a lower NFP read.

AUD/USD ECONOMIC CALENDAR (GMT +02:00)

Source: DailyFX economic calendar

TECHNICAL ANALYSIS

AUD/USD DAILY CHART

Chart prepared by Warren Venketas, TradingView

Daily AUD/USD price action has now broken below the double top (blue) neckline around the 0.6596 swing low/0.6600 psychological region. This could open up the 0.6500 support handle once more, pushing the Relative Strength Index (RSI) closer to oversold territory.

supports my prior analysis of a 0.6700 retest which has since played out dipping below both the 50-day (yellow) and 200-day (blue) moving averages respectively. Bears now look to set their sights on the coinciding with the.

Key resistance levels:

• 0.6772
• 200-day MA
• 0.6700/50-day MA
• 0.6596

Key support levels:

IG CLIENT SENTIMENT DATA: BEARISH (AUD/USD)

IGCS shows retail traders are currently net LONG on AUD/USD, with 76% of traders currently holding long positions. At DailyFX we typically take a contrarian view to crowd sentiment resulting in a short-term downside disposition.

AUD/NZD DAILY CHART

Chart prepared by Warren Venketas, TradingView

AUD/NZD has pushed higher on the back of the recent New Zealand jobs figures but the trading bias remains towards the downside with the RSI below the midpoint level as well as prices trading below the 50-day (yellow) and 200-day (blue) moving averages respectively.

Key resistance levels:

• 1.0923
• 200-day MA
• 1.0834
• 50-day MA

Key support levels:

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