For a second straight week, the Australian dollar, was almost unchanged. The RBA will set the benchmark rate this week and we’ll get a look at retail sales. Over in the U.S., the key event is nonfarm payrolls. Here is an outlook for the highlights of this week and an updated technical analysis for AUD/USD.
In the U.S., Final GDP disappointed with a gain of 2.2%, compared to the initial reading of 2.6%. Personal spending posted a weak gain of 0.1%, and CB consumer confidence fell to 124.1, down sharply from 131.4 in the previous release.
There was positive news on the trade war front, as negotiations between the U.S. and China continue. A report on Thursday noted that the sides have made progress in all areas, raising risk appetite at the expense of safe-haven gold. U.S. Treasury Secretary Robert Mnuchin is in Beijing for the latest round of talks, raising hopes that an agreement is not far off.
AUD/USD daily graph with support and resistance lines on it. Click to enlarge:
- Chinese Manufacturing PMI: Sunday, 1:00. The nasty trade war with the U.S. has resulted in a slowdown in the Chinese economy, and the manufacturing sector has been hit hard. The PMI has indicated for contraction for three successive months, and another contraction is expected in March, with an estimate of 49.6 points.
- AIG Manufacturing Index: Sunday, 21:30. The indicator has been improving and climbed to a respectable 54.0 in February. Will the upward trend continue?
- NAB Business Confidence: Monday, 00:30. The National Australia Bank indicator is pointing to weak business confidence, with a weak reading of 2 in February. With the economy showing signs of weakness, business confidence could continue to struggle.
- Building Approvals: Tuesday, 00:30. The indicator tends to show sharp swings from month-to-month. After posting a gain in January, the estimate for February is -1.7%.
- Rate Decision: Tuesday, 3:30. The RBA has pegged the benchmark rate at 1.50% since 2016, and no change is expected in the April decision. The economy has been damaged by the slowdown in China, and there are growing calls for a rate cut if economic growth doesn’t pick up.
- Annual Budget Release: Tuesday, 9:30. The government publishes its annual budget, which includes forecasts for growth and inflation. With the economy showing signs of contraction, government revenue may be less than expected, which could sour investors on the Australian dollar.
- Retail Sales: Wednesday, 00:30. As the primary gauge of consumer spending, retail sales should be treated as a market-mover. The indicator posted a small gain of 0.1% in January, shy of the estimate of 0.3%. The estimate for February stands at 0.3%.
- Trade Balance: Tuesday, 00:30. Australia continues to post monthly trade surpluses. In January, the surplus widened to A$4.55 billion, better than expectations. The forecast for February is A$3.71 billion.
- AIG Construction Index: Thursday, 21:30. The construction sector continues to struggle and has posted contractions for six successive months. Another weak reading is expected in March.
*All times are GMT
AUD/USD Technical Analysis
0.7085 (mentioned last week) continues to remain relevant and was tested in support throughout the week.
Technical lines from top to bottom:
The round number of 0.74 was the high point reached at the wake of December. This is followed by 0.7340, which the pair breached in late November.
0.7315 was a swing high seen in late September. Further down, 0.7240 separated ranges in September and in October. 0.7190 marked a low point in the first week of December.
Lower, 0.7165 was a swing low after a recovery in mid-November. 0.7085 was a low point in September and remained relevant during the week.
Close by, 0.6970 played a role back in January 2017.
Below, 0.6825 supported the pair in late 2016 and early 2017.
0.6744 was a low point in January.
0.6686 was an important cap back in January 2000. It is the final support line for now.
I am bearish on AUD/USD
The slowdown in China has weighed heavily on the Australian economy, and investors will be keeping a close eye on the RBA rate statement. If the bank sounds pessimistic about the economic outlook, the Aussie could lose ground.
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