AUD/USD Forecast Oct. 5-9 – Aussie rebounds, RBA hints at rate cut

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AUD/USD continues to show strong volatility. The pair gained 1.9% last week, after sliding 3.6% a week earlier. The upcoming week has eight events, including retail the RBA rate decision. Here is an outlook at the highlights and an updated technical analysis for AUD/USD.

In Australia, Building Starts fell by 1.6%, after a sharp gain of 12.0% beforehand. Retail Sales were upwardly revised to 4.0%, from the initial reading of -4.2%. This figure disappointed, as the forecast stood at +3.2 percent. China’s Manufacturing PMI rose slightly to 51.5, up from 50.5 points. The neutral 50-level separates contraction from expansion.

The week started on a positive note in the US, as the Conference Board Consumer Confidence jumped to 101.8 in September, up from 86.3. This easily beat the forecast of 90.0 points. Third-estimate GDP for the second quarter was upwardly revised to 31.4%, up from 31.7%. On the manufacturing front, the ISM Manufacturing PMI remained well in expansionary territory, with a reading of 55.4 points, down slightly from 56.0. The neutral 50-mark separates contraction from expansion.

Job growth slowed sharply in September, as Nonfarm Payrolls fell to 661 thousand, down from 1.37 million beforehand. This was much weaker than the estimate of 900 thousand. Wage growth dropped from 0.4% to 0.1%, missing the forecast of 0.5%.

AUD/USD daily chart with support and resistance lines on it. Click to enlarge:
  1. MI Inflation Gauge: Monday, 00:00. The Melbourne Institute inflation indicator helps analysts track inflation on a monthly basis. In August, inflation slowed to just 0.1%, down from 0.9% a month earlier. We now await the September data.
  2. AIG Construction Index: Monday, 21:30. The Australian Industry Group indicator continues to point to significant contraction, with readings well below the 50-level. In August, the index slowed to 37.2, down from 42.7 a month earlier. Will we see an improvement in the upcoming release?
  3. Trade Balance: Tuesday, 00:30. Australia’s trade surplus narrowed to A$4.61 billion in July, down sharply from A$8.20 billion. This marked a 5-month low. The surplus is projected to improve to A$5.05 billion in August.
  4. RBA Rate Decision: Tuesday, 3:30. The RBA has held rates at 0.25% since March. Will the central bank press the trigger and lower rates at the upcoming meeting? The bank has hinted that it will lower rates, and if it follows through, the Aussie could lose ground. 
  5. AIG Services Index: Tuesday, 21:30. The index remains in contraction territory, with readings well below the 50-level, which separates contraction from expansion. The August release came in at 42.5, down from 44.0 a month earlier. We now await the September data.
  6. RBA Financial Stability Review: Friday, 1:30. The central bank publishes a report on financial stability twice per year. Apart from the assessment on stability, the publication also provides economic figures and may discuss monetary policy.    
  • All times are GMT

AUD/USD Technical Analysis

Technical lines from top to bottom:

With AUD/USD recording sharp gains last week, we start at higher levels:

0.7438 is an important monthly resistance line.

0.7294 (mentioned last week) is next.

The round number of 0.7200 was tested in resistance late in the week.

0.7087 is providing support.

0.7008 is protecting the symbolic 0.7000 line.

0.6937 has provided support since mid-July.

0.6802 is the final support line for now.

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I am bearish on AUD/USD

The US dollar is showing some new-found strength, and has been making strong inroads against the major currencies. Sentiment towards the US dollar remains strong, so it could be another winning week for the greenback.

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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.