AUD/USD Forecast March 4-8

AUD/USD lost ground, dropping almost one cent on  the week.  The pair closed  just  above the 1.02 level, at 1.0203.  Highlights of the upcoming week include the Cash Rate and GDP.  Here is an outlook of the events and an updated technical analysis for AUD/USD.

The Aussie lost ground as Australian and Chinese numbers looked weak.  In Australia, Private Capital Expenditure fell sharply,  and Commodity Prices posted yet another sharp decline. Chinese Manufacturing PMI was well below expectations, and weaker Chinese  manufacturing numbers  translates into less demand for Australian goods and raw materials.

Updates: MI Inflation Gauge came in at 0.0%. Building Approvals disappointed, dropping 2.4%. The estimate stood at a gain of 2.8%. ANZ Job Advertisements broke a string of declines, jumping 3.0%. Company Operating Profits declined by 1.0%, slightly more than the estimate of -0.9%. As expected, the RBA left interest rates at their current level of 3.0%. In an accompanying rate statement, the RBA noted that domestic and global demand had picked up, and most economic indicators were pointing higher. The Current Account deficit narrowed slightly, dropping to -14.7 billion dollars. This beat the estimate of -15.4 billion. The Aussie has edged higher, as the pair was trading at 1.0237. GDP rose 0.6%, matching the forecast. AIG Construction Index shot up to 45.6 points, its best showing since July 2010. Trade Balance looked weak, as the deficit widened to -1.06 billion dollars. The estimate stood at -0.51B. The markets are waiting for some key Chinese releases, as Chinese Trade Balance comes out on Friday and Chinese CPI will be released on Saturday. AUD/USD has edged lower, as the pair was trading at 1.0256.

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

1. MI Inflation Gauge: Sunday, 23:30. This indicator is released monthly and is used to help track CPI, which is published every quarter. The indicator has  risen  recently, posting 0.3% and 0.4% in the past two readings.
2. Building Approvals: Monday, 00:30.Building Approvals  is known for its volatility. The indicator dropped 4.4% in February, but  the markets are expecting  a  turnaround in March, with an estimate of 2.8%.
3. ANZ Job Advertisements: Monday, 00:30. This important employment indicator continues to post declines, although the drop of 0.9% in February was the lowest since July 2012. Will the indicator continue to improve in the upcoming reading?
4. Company Operating Profits: Monday, 00:30: This indicator, issued quarterly,  measures the change in profits earned by businesses. The indicator has been on a downward slide, posting consecutive declines since  Q3 of  2011. The estimate for Q4 of 2012 remains in negative territory, at -0.9%.
5. AIG Services Index: Monday, 22:30.   The Services index has been mired below the 50-point level since February 2012, pointing to ongoing contraction in the services industry. No significant improvement is expected in the March reading.
6. Retail Sales: Tuesday, 00:30. This key indicator has run into some turbulence, and has failed to turn a gain since November 2012. The markets are anticipating a rebound in the upcoming reading, with an estimate of a 0.4% gain.
7. Current Account: Tuesday, 00:30. Current Account has not looked sharp of late, ringing in a deficit of 14.9 billion dollars twice in the past three readings. The deficit is expected to rise slightly in the March reading, with a forecast of a deficit of 15.2  billion. Current Account is directly related to the demand for Australian dollars, as a larger surplus indicates that foreigners are purchasing more Australian dollars to pay for Australian exports.
8. Cash Rate: Tuesday, 3:30. The  RBA has had a habit of  catching the markets by surprise by unexpectedly lowering its  interest rates. This resulted in  volatility in the currency markets. The benchmark interest rate is expected to remain at 3.00%, but a cut in the rates is certainly a realistic possibility, given the generally unimpressive numbers we have seen from the Australian economy. The RBA will release a Rate Statement at the same time as the interest rate announcement.
9. GDP: Wednesday, 00:30. This key indicator is released each quarter, and climbed a respectable 0.5% in Q3. A similar gain is expected for Q4, with the estimate standing at 0.6%.
10. AIG Construction Index: Wednesday, 22:30. The index has been mired in the high-30 point range, pointing to deep contraction in the Australian construction sector. This has also negatively impacted other sectors in the economy, such as the housing and building industries.
11. Trade Balance: Thursday, 00:30. Australia continues to post deficits in its Trade Balance, although the deficit did narrow in February to 430 million dollars. The estimate for the March reading stands at 510 million dollars. Weak global demand has hurt the export sector, and this has  had a negative effect on the  country’s Trade Balance.
12. Chinese Trade Balance: Friday, Tentative. Chinese Trade Balance has been posting very high numbers recently, but the good news may come to crashing end in the upcoming release. The markets are bracing for a deficit of 8.8 billion dollars, which would be the first deficit the Asian giant has posted since March 2010. A weak reading could send the Aussie for a downward ride, as China is Australia’s most important trade partner.
13. Chinese CPI: Saturday, 1:30. Chinese CPI fell to 2.0% in February, but the markets are expecting it to climb right back this month. The estimate stands at 3.0%, which would be the highest reading since June 2012. Higher inflation is indicative of increased spending and economic activity in China, and is bullish for the Australian dollar.

AUD/USD opened at 1.0297 and touched a high of 1.0328,  briefly pushing  past resistance at 1.0326  (discussed last week). The pair then lost ground,  and   dipped  as low as 1.0182. This  marked the first time the Australian dollar  fell below the 1.02 level since last October.  The pair closed the week at 1.0203.

We begin with resistance at 1.0739. The is followed by 1.0605. The pair has not tested this line since September. Below, there is resistance at 1.0508. This line was breached in January, when the Aussie commenced a downward trend from which it is yet to recover. Next, there is resistance at the line of 1.0418. We next encounter resistance at 1.0371. This is followed by 1.0326, which  was briefly broken as the pair pushed higher early in the week. Below, 1.0230 has now reverted to a resistance role. This line is a weak one, and could continue to see activity if the pair can muster any upward momentum.

AUD/USD is receiving support at 1.0174. This line was last tested in early October, but the pair came close this week as it dipped below the 1.02 line. Next is 1.0080, which is protecting the parity level. The parity line, last tested in June, is psychologically significant and provides the next line of support.  Below  is 0.9917. This is followed by 0.9876, which has held firm since June of 2012. The final support line for now is at 0.9785.

I am bearish on AUD/USD.

AUD/USD has had a shaky 2013, and has lost over 300 points since late January. The pair dipped below the 1.02 line for the first time since October 2012, and we could see the downward trend continue. Australian data has not  been impressive, and there is concern that China is experiencing an economic slowdown. As well, the RBA has reiterated that it will lower interest rates if it  needed, which would hurt the value of the Australian dollar.

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

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 USD/CAD (loonie), check out the Canadian dollar forecast