The Australian dollar hit new highs when the US and China seemingly made significant progress but dropped back with the reality. What’s next? The upcoming week features a mix of Australian and Chinese events. Here are the highlights of the week and an updated technical analysis for AUD/USD.
China, Australia’s No. 1 trade partner, agreed on a trade truce with the US in the Xi-Trump meeting in Buenos Aires. However, there were differences between the versions coming out of Washington and Beijing. Moreover, the arrest of Huawei’s CFO Meng weighed heavily on the mood. Australian data did not help. GDP increased by only 0.3% q/q in Q3, half the expectations. The RBA hardly changed its statement in its last rate decision for the next two months but may need to downgrade its assessments if the data continue disappointing.
AUD/USD daily graph with support and resistance lines on it. Click to enlarge:
- Christopher Kent talks: Sunday, 21:35. The Assistant Governor at the RBA will speak in Sydney at the wake of the new week and will have an opportunity to comment on the weak GDP data and the path of monetary policy.
- Home Loans: Monday, 00:30. After many years of a housing boom, things are slowing down, especially in Sydney. Home loans dropped by 1% in September. A slide of 0.5% is projected for October.
- HPI: Tuesday, 00:30. The House Price Index dropped in the past two quarters, both by 0.7%. No respite is due now, as expectations stand at an even greater decline, of 1.5% in Q3 2018.
- NAB Business Confidence: Tuesday, 00:30. The National Australia Bank’s monthly survey of around 350 businesses dropped to 4 points in October, at the lower end of the range that was seen in recent months. A similar score is likely for October.
- Westpac Consumer Sentiment: Tuesday, 23:30. The Westpac-Melbourne Institute Consumer Sentiment showed an increase of 2.8% in sentiment in November, a significant improvement in this volatile indicator. The survey of 1,200 consumers may drop now.
- MI Inflation Expectations: Thursday, 00:00. Australia publishes official inflation numbers only once per quarter. This monthly gauge by the Melbourne Institute fills the gap. Inflation expectations dropped to 3.6% in October after 4% in the previous three months. Another drop will indicate a slowing economy in addition to slower price rises.
- RBA Bulletin: Thursday, 00:30. The RBA publishes this quarterly in-depth report about the current and future economic conditions. Some of the data is already out, limiting the impact, but surprises cannot be ruled out.
- Chinese Industrial Production: Friday, 2:00. The world’s second-largest economy has seen a slight slowdown in the pace of growth. Output increased by 5.9% y/y in October and a repeat of the same annual growth rate is projected for November.
*All times are GMT
AUD/USD Technical Analysis
Aussie/USD kicked off the week with a massive weekend gap and nearly reached 0.74 before falling sharply to just below 0.72.
Technical lines from top to bottom:
0.7480 capped the pair in mid-July and defends the round 0.75 level. 0.74 was the high point reached the pair reached at the wake of December. The next line to watch is 0.7340 that the Aussie hit in late November.
0.7315 was a swing high seen in late September and it remains relevant. Further down, 0.7240 separated ranges in September and in October. 0.7190 was a low point in early December.
Lower, 0.7165 was a swing low after a recovery in mid-November. 0.7085 was a low point in September.
The round number of 0.70 is closely watched by many market participants. Close by, 0.6970 played a role back in January 2017. Below, the only noteworthy level is only 0.6825 that supported the pair in late 2016 and early 2017.
I am bearish on AUD/USD
The global economy is slowing down and so is Australia. Contrary to what the RBA has said, it is more likely to see interest rates falling rather than rising in Australia. And in the US, things are going in the opposite direction.
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