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The Australian dollar lost momentum. Despite trade war tensions and weak reports from the labor market, ongoing gains on the USD side indicate the weakness of Australia's currency.
Last week, the Reserve Bank of Australia reduced its interest rate for the first time in three years projecting two more rate cuts before the year-end. The Australian dollar gave in to the greenback by more than 0.5% as the Fed might join the RBA in rate reductions soon. The NAB Business sentiment increased to 7 from 0, while the consumer sentiment dropped to -0.6% from 0.6%. Currently, the market is waiting for the latest employment report on Thursday. April's jobs data came out quite disappointing and was another reason for the RBA to go ahead with a rate cut. If the employment report for the month turns out to be weaker-than-expected, there might be some more rate cuts by the RBA.
Today Australian Employment Change report showed a decline to 42.3k from the previous figure of 43.1k, while the Unemployment Rate remained unchanged at 5.2%, even though it was anticipated to drop to 5.1%.
On the other hand, there are pretty optimistic expectations regarding US Retail Sales. It is forecast to rise to 0.7% from -0.2%, and USD is expected to sustain further momentum over AUD. The trade talks between the Chinese and US leaders should take place after three weeks. However, expectations of any progress towards ending the trade war are low. US President Donald Trump has recently defended the use of tariffs as part of his trade strategy, while China vowed a tough response in case the United States escalated tensions in the ongoing negotiations.
The chances that the Federal Reserve's interest rate will be cut this year have dramatically increased in the past month amid the US-China standoff. Fed Chair Jerome Powell said last week the central bank would act "as appropriate" to address risks from the US-China trade war leaving the door open for a possible rate cut. This is the second sudden shift in the Fed's tone after it changed its policy bias from steady tightening in January.
Today the US Import prices report is expected to show a decline to -0.3% from the previous value of 0.2%, and the Unemployment Claims data is forecast to lower to 215k from the previous figure of 218k.
As for the current scenario, the US economy is being affected quite significantly by the trade war tensions, while the recent Australian positive employment report may attract certain market sentiment. Even though USD is the dominant currency in the pair, AUD may regain momentum if the US fundamentals struggle further.
Now, let us look at the technical view. The pair is currently trading below 0.70 following correction and retest. As per the preceding bearish trend, it has greater chances of pushing lower with the target at the 0.6850 support area in the coming days. As far as the price is restrained by the dynamic level of 20 EMA below the 0.70 area with a daily close, the bearish bias is expected to continue.
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