AUD/USD Forecast Aug. 31-Sep. 4 – Aussie soars on Powell comments

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AUD/USD climbed to a 20-month high last week, as the pair gained 1.4 percent. The upcoming week has nine events, including the RBA rate decision and GDP. Here is an outlook at the highlights and an updated technical analysis for AUD/USD.

The Aussie enjoyed strong gains despite soft fundamentals. Construction Work Done declined 0.7%, marking an eighth straight losing quarter, as the construction sector continues to struggle. Capex spending fell by 5.9%, pointing to weakness in the business sector. The indicator has failed to post a gain since Q4 of 2018.

Over in the US, Conference Board Consumer Confidence slipped to 84.8, down from 91.7 beforehand. Durable Goods Orders were mixed – the headline reading accelerated 11.2%, up from 7.3% in the previous release. However, the core release slowed to 2.4%, down from 3.3% beforehand. US second-estimate GDP was upwardly revised to 31.7%, compared to 32.9% in the initial release.

The market-mover of the week was a speech from Federal Reserve Chair Jerome Powell at the Jackson Hole meeting. Powell said that the Fed would allow inflation to overshoot its inflation target of 2.0%. This dramatic shift in policy means that interest rates will likely stay very low for the foreseeable future. This resulted in broad losses for the US dollar last week.

AUD/USD daily chart with support and resistance lines on it. Click to enlarge:
  1. MI Inflation Gauge: Monday, 1:00. This inflation indicator helps analysts track inflation on a monthly basis, as CPI is only released each quarter. Inflation climbed 0.9% in July, its highest one-month gain since July 2009. Will the upswing continue in August?
  2. Company Operating Profits: Monday, 1:30. Company earnings rebounded in Q1, with a gain of 1.1%. This follows two successive declines. However, another decline is expected in Q2, with a forecast of -6.0%.
  3. AIG Manufacturing Index: Monday, 22:30. The Australian Industry Group index has improved in recent months, after falling to 35.8 in April. The index rose to 53.5 in July, up from 51.5 beforehand. The 50-level separates contraction from expansion. We now await the August data.
  4. Current Account: Tuesday, 1:30. Australia’s current account surplus climbed to A$8.4 billion in Q1, up sharply from A$1.0 billion in the previous quarter. The upswing is expected to continue, with an estimate of A$13.0 billion.
  5. RBA Rate Decision: Tuesday, 4:30. The RBA has sounded dovish about economic conditions, but no change is expected in the Cash Rate, which has been pegged at 0.25% since March. Investors will be keeping a close eye on the tone of the RBA statement.
  6. GDP: Wednesday, 1:30. Australia’s economy declined by 0.3% in the first quarter, reflective of the severe economic conditions to the Covid-19 pandemic. This marked the first decline since 2016. Analysts are braced for a sharp downturn in Q2, with an estimate of -6.0%. Two successive declines in GDP indicates that the economy is in recession.
  7. AIG Construction Index: Wednesday, 22:30.  The index has been moving higher, but still remains in contraction territory, with readings below the 50-level. In July, the index rose to 42.7, up from 35.5 beforehand. Will the upswing continue in August?
  8. Retail Sales: Friday, 1:30. Retail sales rose 3.3% in June, as consumer spending remained solid, despite the economic downturn to the Covid-19. Another gain of 3.3% is projected for July.
  9. AIG Services Index: Friday, 22:30. The index has been in contraction territory since December 2019, as the services sector continues to struggle. The July release improved to 44.0, up from 31.5 beforehand. Will the upswing continue in August?

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AUD/USD Technical Analysis

Technical lines from top to bottom:

We start with resistance at the round number of 0.7700. This is followed by resistance at 0.7595.

0.7513 has held since June 2018.

The round number of 0.74 (mentioned last week) is next.

0.7315 has switched to a support role following strong gains by AUD/USD last week. 0.7238 follows.

0.7165 has some breathing room in support.

0.7087 is the final support line.

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I remain neutral on AUD/USD

The US dollar has been under attack, but at some point we will likely see the greenback rebound due to profit-taking. Australian numbers have not been particularly strong, but investors are also worried about the deadlock in Congress over a massive fiscal stimulus package.

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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.

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