The Australian dollar reversed direction this week, plunging over two cents against the US dollar. AUSD/USD dropped below the 1.03 line, closing at 1.0276. There are only four events in the upcoming week, highlighted by CPI. Here is an outlook of the events and an updated technical analysis for AUD/USD.
Earlier this month, the Aussie managed to shrug off weak domestic data and climb higher, but it took a hit this week as Chinese GDP fell below the estimate. Another factor which weighed on the Australian currency was the minutes from the recent RBA policy meeting, pointed to a possibility of further interest rate cuts.
Updates: CB Leading Index edged up from 0.2% to 03%. Chinese Flash Manufacturing disappointed, dropping from 51.7 points to 50.5 points. The estimate stood at 51.4 points. Australia will release CPI on Wednesday. AUD/USD continues to lose ground, as the pair was trading at 1.0244.
AUD/USD graph with support and resistance lines on it. Click to enlarge:
CB Leading Index: Tuesday, 00:00. This important index is made up of 7 economic indicators. The index bounced back nicely in March, gaining 0.2%. The markets will be hoping for a stronger rise in the April release.
Chinese Flash Manufacturing PMI: Tuesday, 1:45. This key indicator has been slightly above the 50-point level since October 2012, indicating modest expansion in the manufacturing sector. The index climbed to 51.7 points in March, and a similar reading is expected in the upcoming release.
CPI: Wednesday, 1:30. CPI, which is released each quarter, is this week’s major event. As the most important inflation release, it is a market-mover and can affect the direction of AUD/USD. CPI dropped sharply in Q4 of 2012, rising just 0.2%. The markets are expecting better news in the Q1 release, with an estimate of 0.7%.
Trimmed Mean CPI: Wednesday, 1:30. Trimmed Mean CPI is also released on a quarterly basis, but has been more consistent than CPI. the Q4 release came in at 0.6%, and the estimate for Q1 calls for a gain of 0.5%.
RBA Deputy Governor Philip Lowe: Wednesday, 3:30. Lowe will be in Shanghai to address the Australian Chamber of Commerce. A speech that is more hawkish than expected is bullish for the Australian dollar.
AUD/USD Technical Analysis
AUD/USD opened at 1.0509, and quickly touched a high of 1.0524. It was all downhill from there, as the pair fell to a low of 1.0269. The support line of 1.0260 (discussed last week) held firm. AUD closed the week at 1.0276.
Technicallines from top to bottom:
We begin with resistance at 1.0739. This line has remained intact since March 2012, when the Australian dollar started a steep drop which saw it fall well below parity. The is followed by 1.0605. The pair has not tested this line since September. Below, there is resistance at 1.0508. Next, 1.0416 was serving in a support role earlier in the month, but is now providing strong resistance, as the pair trades at lower levels. This is followed by resistance at 1.0326, which had served as a support level since mid-March, but was breached as the pair fell sharply.
AUD/USD is receiving support at 1.0260. This line faced pressure last week as the pair slumped badly, but remained intact. Below, the pair is receiving support at 1.0174. This line has held steady since early March. We next encounter support at the line of 1.0080, which is protecting the parity level. This is followed by support at the parity line, which has held steady since June and is a psychologically significant barrier. Next, there is support at 0.9907. The final support level is at 0.9795, which has held firm since June 2012.
I continue to be bearish on AUD/USD.
This week’s tumble by the Aussie was long overdue, as Australian numbers have not impressed, and the RBA keeps warning anyone who is listening that it is ready to cut rates further. The catalyst for the nosedive was weak Chinese GDP numbers, which will be bad news for Australia, as China is the country’s most important trading partner. With investors made more nervous by weak US numbers, we could see the Australian dollar continue to move lower.
Kenny Fisher - Senior Writer
A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.
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