The Australian dollar hit a 13-month low but managed to end the week off the lows. What’s next? The rate decision and retail sales stand out. Here are the highlights of the week and an updated technical analysis for AUD/USD.
The Australian dollar was sensitive to the global mood around trade. It dropped to 13-month lows as fears grew but recovered as Trump went for a less harmful option of curbing Chinese investment in the US. Australian private sector credit disappointed with slow growth but this did not rock the boat too much.
Update: the RBA left rates unchanged as expected but the decision stood out thanks to the RBNZ’s dovish stance. Australian retail sales beat expectations with a rise of 0.4%, helping the Aussie extend its recovery. A calmer mood in markets also helped. The Australian Dollar crawled back up to 0.74 on a good mood in markets. China’s soothing words about not taking the first shot helped the improve the mood and so did Angela Merkel’s willingness to cut EU tariffs on cars, a move meant to appease the US. Markets reacted with a shrug to the US tariffs on China and the counter-duties by the world’s second-largest economy.
AUD/USD daily graph with support and resistance lines on it. Click to enlarge:
- AIG Manufacturing Index: Sunday, 22:30. The Australian Industry Group’s 200-strong forward-looking survey of the manufacturing sector showed ongoing growth, with a score of 57.5 points in May, albeit below previous levels. A similar level is likely for June.
- MI Inflation Gauge: Monday, 1:00. The Melbourne Institute’s monthly inflation indicator provides updated information about changes in prices while the government published such figures only on a quarterly basis. According to MI, prices remained flat in May. We will now get the figures for June.
- ANZ Job Advertisements: Monday, 1:30. The Australia New Zealand Bank provides another look at the job market via this publication which examines ads. After two months of increases, ads remained flat in May. A return to growth may be seen now.
- Caixin Manufacturing PMI: Monday, 1:45. The independent manufacturing PMI of the Chinese economy stood at 51.1 points in May. A repeat of the same score is on the cards for June, even though the official numbers missed expectations over the weekend. China is Australia’s No. 1 trade partner.
- Commodity Prices: Monday, 6:30. After several months of y/y drops, prices of commodities rose by 3.6% in May. Another increase could be seen in June.
- Building Approvals: Tuesday, 3:30. Changes in building consents are quite wild, but still, provide some insights into the housing sector. A sharp fall of 5% was recorded in April and May is projected to see a small increase of 0.1%.
- Australian rate decision: Tuesday, 4:30. The Reserve Bank of Australia has not changed its interest rate in nearly two years. This time is unlikely to be different. Phillip Lowe and his colleagues are expected to leave the Cash Rate at 1.50%. The statement has hardly changed either in recent months. Any warning about trade relations may weigh on the Australian Dollar. The Reserve Bank of New Zealand came out with a slightly dovish statement and the RBA could follow.
- AIG Services Index: Tuesday, 22:30. Australia’s services sector is doing better than the manufacturing one according to AIG’s figures. A score of 59 was seen in May.
- Retail Sales: Wednesday, 1:30. The influential release came out at 0.4% for April, slightly above expectations, and gave a boost to the Aussie. We will now get the consumption numbers for May, which are projected to see an increase of 0.3%.
- Trade Balance: Wednesday, 1:30. Australia enjoyed a trade surplus of 0.98 billion in April and is projected to enjoy a wider surplus of 1.21 billion in May. Australia exports more than in imports.
- AIG Construction Index: Thursday, 22:30. Australia’s construction sector is lagging behind according to AIG, with a score of 54 points in May.
*All times are GMT
AUD/USD Technical Analysis
Aussie/USD dipped to lower ground, flirting with the 0.7325 level mentioned last week. It then recovered and closed the week around 0.74.
Technical lines from top to bottom:
Further below, 0.7640 was a stubborn cushion in March and April. The fall below this line proved its strength. 0.7610 was the peak of an upwards move in late May.
0.7560 is the next level to watch after it was the recovery level in early May. 0.7520 was a swing low in late May.
0.7470 was an initial low in late April and it is followed by 0.7410, an old line from 2017. Further down, 0.7375 is notable.
0.7325 was a support line back in May 2017 and is now coming into play. 0.7250 served as a pivotal line in early 2017 and the last line to watch is 0.7160 that was the swing low back then.
I remain bearish on AUD/USD
The relief in trade wars seems temporary and the Aussie could continue struggling.
Our latest podcast is titled Festive Fed, Dovish Draghi, and a global trade war
- EUR/USD forecast – for everything related to the euro.
- GBP/USD forecast – Pound/dollar predictions
- USD/JPY forecast – projections for dollar/yen
- USD/CAD forecast – Canadian dollar analysis
- Forex weekly forecast – Outlook for the major events of the week.
Safe trading!Get the 5 most predictable currency pairs