AUD/USD Forecast July 1-5

The Australian dollar continues to lose ground against the US currency, and lost about one cent on the week. AUD/USD closed the week at 0.9137. This week has several highlights, including the Cash Rate, Retail Sales and Building Approvals. Here is an outlook of the events and an updated technical analysis for AUD/USD.

Last week’s sole Australian release was Private Sector Credit, which was uneventful. It was a different story in the US, as most releases looked sharp, and this bolstered the US dollar, as it continues to chip away at the struggling Aussie.

Updates:

Manufacturing is still in contraction zone according to AIG, but it is slower. AUD/USD has stabilized above 92 towards the rate decision. No change is expected.
MI Inflation Gauge dropped to a flat 0.0%.
Chinese Manufacturing PMI dropped from 50.8 points to 50.1 points, matching the forecast.
Commodity Prices posted its sharpest decline of the year, dropping 10.5%.
The RBA left the dovish bias unchanged and AUD/USD fell – the central bank left an open door for more cuts and while acknowledging the contribution of the lower Aussie to the economy, a further drop would certainly be welcome. The key interest rate remains pegged at 2.75%.
Retail Services and Trade Balance will be released on Wednesday.
HIA New Home Sales rose 1.6%, down from a gain of 3.9% in the June release.
AUD/USD collapsed to the 0.90 handle: the Aussie was hit by very dovish comments from RBA governor Glenn Stevens, and found its way to as low as 0.9051. A weak gain of 0.1% in retail sales also contributed.
Better than expected job gains in the US limited a recovery that AUD/USD was attempting to stage. It trades at 0.9070.
Trade Balance posted a third straight surplus, climbing to $0.67 billion.
Building Approvals slumped badly after a strong June reading of 9.1%, declining 1.1%.
AIG Construction Index will be released late Thursday.
AUD/USD is showing little change and was trading in the low-0.91 range.
The US gained 195K jobs and revisions were positive. This sent the dollar higher across the board, with AUD/USD falling to 0.9050. The 0.90 figure is getting closer.

AUD/USD graph with support and resistance lines on it. Click to enlarge:

AIG Manufacturing Index: Sunday, 23:30. The index climbed from 36.7 points to 43.8 points last month, but continues to point to contraction in the manufacturing sector. The index was last above the 50 level in February 2012. The markets are hoping that the upward trend continues in the July release.
MI Inflation Gauge: Monday, 00:30. This indicator provides analysts with a monthly look at inflation, as the official CPI release is published each quarter. The indicator continues to point to very low inflation, with a June reading of 0.2%.
Chinese Manufacturing PMI: Monday, 1:00. This PMI rose very slightly last month, coming in at 50.8. This beat the estimate of 49.9 points, and the index has been close to the 50 level all of 2013, indicating very modest expansion in the Chinese manufacturing sector. The index should be treated as a market-mover, as China is Australia’s number one trading partner, and an increase in Chinese manufacturing means more demand for Australian raw materials, which is good for the Aussie.
Commodity Prices: Monday, 6:30. Commodity prices continue to slump, as the indicator dropped 8.6%, its sharpest decline this year. A sluggish global economy means reduced demand for Australian exports, and this continues to weigh on the Aussie.
RBA Cash Rate: Tuesday, 4:30. The Cash Rate has held steady at 2.75% since April. No change in the rate is expected, but we’ve seen the RBA catch the market off guard with a surprise rate cut in the recent past. If the unexpected does occur and there is another reduction, the Aussie would likely lose ground. The RBA will announce its interest rate decision with a rate statement.
AIG Services Index: Tuesday, 23:30. This index continues to point to a very weak services sector. The index dropped from 44.1 points to 40.6 points, its lowest level since May 2012. Will the indicator bounce back in the upcoming release?
HIA New Home Sales: Wednesday, Tentative. New Home Sales helps analysts gauge the amount of activity in the Australian housing sector. As well, since a new home is likely the largest purchase a consumer will make, the indicator is important for measuring consumer confidence and spending.
Retail Sales: Wednesday, 1:30. This key indicator can have a major impact on the direction of AUD/USD. Retail Sales gained just 0.2% last month, falling short of the estimate of 0.3%. The markets are expecting a small gain this week, with an estimate of a 0.4% gain.
Trade Balance: Wednesday, 1:30. The figures have been modest, but Australia has posted trade surpluses for the past two readings. In June, the surplus amounted to 0.03 billion dollars, and the upcoming estimate is very close to this, at 0.05 billion dollars.
Building Approvals: Thursday, 1:30. Building Approvals continues to vacillate, making accurate forecasts difficult. The key indicator jumped 9.1% last month, way above the estimate of 4.1%. The markets are bracing for a very weak reading in July, with an estimate of -0.9%. Will the indicator surprise the markets with another solid release?
AIG Construction Index: Thursday, 23:30. The index remains mired in the 30’s range, indicating sharp contraction in the Australian construction industry. The previous release came in at 35.3 points, and we could see more of the same in the upcoming release.

Live Chart of AUD/USD: [do action=”tradingviews” pair=”AUDUSD” interval=”60″/]

AUD/USD Technical Analysis

AUD/USD continued to post losses last week. The pair opened at 0.9243 and quickly touched a high of 0.9344. The pair then fell to a low of 0.9113, breaking through support at 0.9171 (discussed last week). The pair closed the week at 0.9137.

Technical lines from top to bottom:

We begin with strong resistance at 0.9797, which was last tested in mid-May. The next resistance line is at 0.9634. This line saw some action in May, and the pair has continued to drop sharply.

0.9549 continues to provide resistance. It has strengthened as the pair trades at lower levels. Next is 0.9428, which had a busy month of June. Prior to that, this line had provided strong support, and had remained intact since October 2011.

0.9283 started the week as a weak resistance line, and was breached as the pair posted gains early last week. However, AUD/USD quickly retracted, and remains intact as we start the new trading week. Next, 0.9171 has reverted to a resistance line. This is not a strong line, and could see action early in the week.

AUD/USD is receiving support at 0.9041. This line is protecting the psychologically important 90 level.

0.8893 was last breached in August 2010, as the Australian dollar put together a strong rally which saw it climb above the 1.10 line. This is followed by 0.8747, which has remained in place since July 2010.

The final support line for now is at 0.8550, which saw a lot of action in mid-2010 and has remained intact since that time.

I continue to be bearish on AUD/USD.

AUD/USD continues to be a tale of two currencies. The Aussie remains mired in a bad slump, while the US dollar has been looking strong. Talk of tapering QE and strong US releases have bolstered the US dollar, and if Australian numbers don’t look sharp, we could see the Aussie continue to spin out of control.

The Aussie sometimes moves in tandem with gold. You can trade binary options on gold using this technical analysis.

Kenny Fisher

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. Kenny's Google Profile

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