AUD/USD Outlook January 30 – February 3

The  Australian dollar  had another outstanding week against the  greenback,  climbing almost 200 points.  The  upcoming week is extremely busy, with nine indicators being released.  Here is an outlook for the Australian events, and an updated technical analysis for AUD/USD.

The US dollar weakened against most major currencies following Bernanke’s  announcement that  interest rates will likely remain near zero until late 2014. However, the global slowdown has taken its toll on the Australian export sector, and the aussie may run out of steam as a result.

Updates: The Aussie fell from the highs on a downgrade by Fitch for four large Australian banks, and a lack of easing action in China regarding the Reserve Ratio Rate. The pair bounced off 1.0525.  Australian Business Confidence edged up, and so did Private Sector Credit. Nevertheless, fresh worries in Europe capped another rally and 1.0680 seems like a strong cap. The Aussie got a boost from the better-than-expected Chinese manufacturing PMI, which showed a second month of growth. This countered the negative domestic HPI – Australian housing is still suffering. The Aussie managed to break higher, with AUD/USD above 1.07.

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

1. NAB Business Confidence:  Tuesday, 00:30. This diffusion  index is based on a survey of about 350  businesses, which are asked for their opinion of business conditions. The index has been in shallow positive  territory for the past two readings, indicating slightly improving business conditions.
2. Private Sector Credit:  Tuesday,00:30. An increase in demand for credit  by the private sector signals increased spending and confidence in the economy. The index increased by 0.3% in the previous  reading, and a slight improvement to 0.4% in predicted for this month.
3. AIG Manufacturing Index:  Tuesday,  22:30. This  index is based on  a survey of 350 manufacturers, who are surveyed  on issues relating to this sector. The index  recorded 50.2 last month, marking only its third reading above the 50 level in all of 2011. Will the index continue to stay in positive territory?
4. HIA New Home Sales:  Wednesday, publication time tentative.  New  home sales were up last month by a stellar 6.8%, the best reading since March 2010. An increase in consumer spending and confidence in the economy is welcome news for the Australian economy.
5. HPI: Wednesday, 00:30. This index measures inflation in the important housing sector. The reading  last month was  in  negative territory, and the prediction for  this  month also calls for a drop in inflation.
6. Commodity Prices:  Wednesday, 5:30. This indicator is very dependent upon the global economy. The previous reading was a major disappointment, recording its worst  numbers since April 2010. Will the indicator rebound this month?
7. Building Approvals:  Thursday, 00:30. After two consecutive readings deep in negative territory, the indicator rebounded in fine fashion, recording a increase of 8.4%. The markets are expecting a correction, as the forecast is for a modest increase of 2.3%. A higher figure than the forecast would be bullish for the Australian currency.
8. Trade Balance: Thursday, 00:30. Trade balance continues to be a source of concern for analysts. The reading has dropped for three straight months, each time well below the market forecast. The prediction for the January reading calls for yet another decrease. If the actual figures are even lower than the prediction, this will likely hurt the aussie.
9. AIG Services Index: Thursday, 10:30. The previous reading came in at 49.0. This index managed to stay above the 50 level only three times during 2011, signalling ongoing weakness in the services industry. Will the index climb above 50, and start 2012 on a positive note?

* All times are GMT.

AUD/USD Technical Analysis

AUD/USD  continued  its upward trend  this  week. The pair opened at 1.0466, and dropped slightly to 1.0427. The aussie then rallied, briefly breaking the  resistance line of 1.0660  (discussed last week)  as it touched a high of 1.0688. The pair closed  at 1.0654, for a gain of almost 200 pips for the week.

Technical levels from top to bottom:

We begin with 1.0990, which  is strong resistance,   just below the psychologically important level of 1.10. This followed by the strong resistance level of 1.0884. Next, 1.0775 is providing resistance to the pair. Below, is the line of 1.0667, which was breached this week and is likely to be tested on any upswing.  Next is the round number of  1.05, which  served as support in May and  June and is now back in that role.  It is followed by the 1.0383 line, which  had recently served as  strong resistance, and now is acting in a support role.  The round number of 1.03 has been  tested  throughout  January, and now finds itself  providing weak support. Next is the support line of 1.0250.

This is  followed  by 1.02, which is providing stronger support as the pair  moves moved upwards. Below, 1.0080 is  providing support, protecting the all- important parity level.  Finally, strong support is seen at  the round number of  0.99.

I am  neutral  on AUD/USD

The Australian dollar  had another brilliant week against its US counterpart,  with the pair closing in on the 1.07 level. There are some  bright signs in the Australian economy,  such as  the housing industry.  Thus, talk of a recession in 2012 may be premature. At the same time, the US economy is improving, and a correction in AUD/USD seems likely.  Can the aussie’s stellar performance continue?

Further reading:

• For a broad view of all the week’s major  events worldwide, read the  USD outlook.
• For EUR/USD, check out  the  Euro to Dollar forecast.
• For the Japanese yen, read the  USD/JPY forecast.
• For GBP/USD  (cable), look into  the  British Pound forecast.
• For the Australian dollar (Aussie), check  out the  AUD to USD forecast.
• For the New Zealanddollar (kiwi),  read the  NZD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar forecast.