AUD/USD Outlook – March 1-5 2010

The Aussie finished lower this week, suffering from risk aversive trading. The upcoming week is busy also in Australia, with a rare combination of a rate decision and GDP day after day. Here’s an outlook for the 13 Australian events, and an updated technical analysis for AUD/USD.

AUD/USD chart with support and resistance lines marked. Click to enlarge:

AUD/USD forecast

At first, the Aussie weathered Bernanke’s move, but fresh fear caused traders to flock the US dollar. Note that the all-important American Non-Farm Payrolls will naturally move the dollar as well. Let’s start the review:

  1. HIA New Home Sales: Publication time unknown at the moment.  The Housing Industry Association showed a big drop in house sales last month – 4.6%. The housing sector is doing better according to other figures. A rise is predicted this time.
  2. AIG Manufacturing Index: Published on Sunday at 22:30 GMT. The Australia Industry Group publishes its own purchasing managers’ index according to a survey of 200 manufacturers. This indicator went above 50 last month, to 51 points, indicating economic expansion. It’s predicted to remain above 50 for another month.
  3. Glenn Stevens talks: Starts talking on Sunday at 22:45 GMT. The governor of the RBA will make a public appearance a little more than 24 hours before the rate decision. This speech, so early in the week will provide a strong start for the Aussie, especially if Stevens talks hints something about the interest rate.
  4. MI Inflation Gauge: Published on Sunday at 23:30 GMT. The Melbourne Institute supplies an independent consumer price index estimate. After last month’s gauge rose by 0.8%, higher than previous months, it’s expected to edge higher once again. As Australian CPI is published only once a quarter, this unofficial figure can move the Aussie.
  5. Current Account: Published on Monday at 00:30 GMT. This is a quarterly release. Australia’s overall balance has been negative in the past years. It has grown to 16.2 billion in the previous quarter and is predicted to further expand in Q4.
  6. Commodity Prices: Published on Monday at 5:30 GMT. Roughly half of the Australian economy is based on export of commodities, so this figure is important. This year over year indicator showed a drop of 11.7% in prices compared last month. A smaller drop is predicted this time.
  7. Retail Sales: Published on Tuesday at 00:30 GMT. Australian consumer disappointed by buying less last time – a squeeze of 0.7%. A correction is predicted this time – 1% rise. Note that these fluctuations go on for quite some time. Note that the tension towards the rate decision will make the impact of this important figure somewhat muted.
  8. Building Approvals: Published on Tuesday at 00:30 GMT and somewhat overshadowed by retail sales. Last month saw another strong rise in approvals – 2.2%. A third month of rises is predicted this time, but in a smaller scale – 0.6%.
  9. Rate decision: Published on Tuesday at 3:30 GMT. After three consecutive rate hikes, Glenn Stevens took a break and left the Cash Rate unchanged at 3.75% last month. This is still the highest in the Western hemisphere. According to some of the hints, the rises are expected to resume, with another 0.25% rise to 4%. It’s also important to note the tone of the accompanying RBA Rate Statement.
  10. AIG Services Index: Published on Tuesday at 22:30 GMT. AIG provides a second PMI-like figure this week, this time for the services sector. Here, the number stands at 47.4, below 50. This means that lower economic activity is expected. It should improve this time.
  11. GDP: Published on Wednesday at 00:30 GMT. The Australian economy disappointed in the previous quarter with a small rise of 0.2% in the overall activity. Australia never fell into recession. This time, the excellent job market is expected to be felt also in the GDP, with a rise of 0.9% in GDP.
  12. Trade Balance: Published on Thursday at 00:30 GMT. Australia’s trade balance release relates to January, contrary to the current account which relates to Q4 of 2009. The deficit of 2.25 billion is expected to be followed by a significantly smaller one – 1.57 billion this time.
  13. AIG Construction Index: Published on Thursday at 22:30 GMT. The third release by AIG is also the third housing figure. The construction sector showed a leap last month, from 49.3 to 57.7 points. A score above 50 will probably be seen this time.

AUD/USD Technical Analysis

The Aussie shot up at the beginning of the week, and couldn’t break the 0.9090 resistance line. It later fell, and went as low as 0.88 before closing at 0.8950, a loss of about 60 pips in the week.

Immediate support appears at 0.8850, a minor line that provided support. Below, 0.8735 was December’s low and provides and additional line of support. Some lines have been modified since last week’s outlook.

The biggest support line appears at 0.8567. This was a support line before the Aussie went higher to the 90s, and also the current year-to-date low.

Looking up, 0.9090 is now a stronger resistance line, successfully serving as such just now. Above, 0.9170 worked as a support line and is now a resistance line.

Further above, 0.9327 continues to be a strong and distant resistance line. The line was tested 4 times in 2009, and only breached once.

I remain bullish on AUD/USD

Despite the bad week, I believe that the fundamental strength of the economy and the high interest rate will push the Aussie higher.

Further reading:

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