AUD/USD Forecast April 1-5

AUD/USD was almost unchanged over the week, after  posting gains in the previous three weeks.  The pair closed the week at 1.0418. This week’s highlights include the RBA Cash Rate,  Building Approvals and Retail Sales.  Here is an outlook of the events and an updated technical analysis for AUD/USD.

Australian numbers were uneventful last week, and the Cyprus crisis may have rattled the markets, but did not have much impact on the Australian dollar.

Updates: Chinese Manufacturing PMI rose in the April reading to 50.9 points from 50.1, but still fell short of the estimate of 51.6. AIG Manufacturing dropped to 44.4 points from the previous reading of 45.6. As expected, the RBA maintained the benchmark interest rate at an even 3.0%. In its Rate Statement, the RBA left the door open for further rates if needed, but gave no indication that  such a step was being contemplated in the near future.  The RBA reiterated that the Australian dollar was still too high,  and noted that previous interest cuts had been effective and helped boost spending. Commodity Prices declined 7.5%. The March release was similar, with a drop of 7.2%. Trade Balance, a key indicator, will be released on Wednesday. AUD/USD has moved higher, as the pair was trading at 1.0462. HIA Home Sales posted a sharp drop, declining 5.3%.   The Aussie gained after an excellent Trade Balance release. The deficit narrowed to 0.18 billion dollars, easily beating the estimate of 1.00 billion. AIG Services Index moved higher, reaching 49.6 points. The index has not been above the 50-point level since February 2o12, indicating ongoing contraction in the services sector. After a decline in the March reading, Building Approvals shot up 3.1%, well above the estimate of 2.4%. Retail Sales also looked good, gaining 1.3%. The estimate stood at 0.3%. The Aussie lost ground despite the solid releases. AUD/USD was trading at 1.0425.

AUD/USD graph with support and resistance lines on it. Click to enlarge:  

1. Chinese Manufacturing PMI: Monday, 1:00. This index has looked steady, staying just above the 50-point level in recent readings. This is a sign of very modest expansion in the Chinese manufacturing sector. The markets are expecting an improvement in the April release, with an estimate of 51.6 points.
2. AIG Manufacturing Index: Monday, 22:30. The Manufacturing Index has been under the 50-point level since February 2012, indicating ongoing contraction in the manufacturing sector. On a brighter note, the index did jump from 40.2 points to 45.6 points in the previous reading. The markets will be hoping for another gain in the March release.
3. Cash Rate: Tuesday, 3:30. Analysts will be on their toes for this key release, as the RBA had a habit of surprising the markets with unexpected interests rate cuts. The current rate stands at an even 3.0%, and most experts anticipate that the central bank will maintain this level. The RBA will announce the Cash Rate with a Rate Statement.
4. Commodity Prices: Tuesday, 5:30. Commodities make up a large part of Australian exports, so analysts are interested in this indicator. Commodity Prices have not posted a gain since April 2012, reflecting persistent weakness in the Australian export sector. The previous release pointed to a decline of 7.2%, and yet another drop is  expected in the upcoming reading.
5. HIA New Home Sales: Wednesday, Tentative. As a new house is likely the most expensive purchase Australian consumers make, New Home Sales is an important indication of consumer confidence and spending. The previous reading showed a healthy gain of 4.2%, and the markets will be hoping for another solid release.
6. Trade Balance: Wednesday, 00:30. Trade Balance is directly linked to currency demand, as a better Trade Balance figure means foreigners are purchasing more Australian dollars to buy Australian exports. The March release was a disappointment, as the Trade Deficit widened and failed to meet the estimate. The markets are expecting little change in the April reading.
7. AIG Services Index: Wednesday, 22:30. The index has not been above the 50-point level since last February, pointing to a sluggish services sector. However, the index did rise in March, climbing to 48.5 points. Will the index continue to push higher in the upcoming release?
8. Building Approvals: Thursday, 00:30. Building Approvals is an important gauge of the health of the Australian construction industry. The indicator has  not looked good recently, posting two consecutive declines. The markets are expecting a turnaround in the April release, with a forecast of a 2.4% gain.  A strong reading  could give a boost to the Aussie.
9. Retail Sales: Thursday, 00:30. After several weak releases, Retail Sales jumped 0.9% in March, blowing past the estimate of 0.4%. A more  modest  gain is expected in the April release, with an estimate of 0.3%. Will the indicator meet or beat the forecast?

AUD/USD Technical Analysis

AUD/USD opened at 1.0448 and touched a  high of 1.0497. The pair then dropped, as it dipped below the 1.04 line to a low of 1.0397. The support line of 1.0371 (discussed last week) held firm as the pair weakened. The pair crossed   back above the 1.04 line, closing the week at 1.0418.

Technical lines from top to bottom:      

We  begin with resistance at 1.1012. This is followed by 1.0888, which has held firm since August 2011. Next, there is resistance at 1.0789. We next encounter resistance at 1.0739. This line has remained intact, since March 2012, when the Australian dollar started a steep drop which saw it fall well below parity. The is followed by 1.0605. The pair has not tested this line since September. Below, there is resistance at 1.0508. This line was breached in January, when the Aussie commenced a downward trend from which has not fully recovered.

AUD/USD is receiving support at 1.0416. This line,  which was breached this week, managed to  remain intact at week’s end. It could see further activity  at the start of next week.    Next, there is support at 1.0371. This is followed by 1.0326, which has held firm since mid-March. Next, there is support at 1.0260. Below, the pair is receiving support at 1.0174. This line has held steady since early March. We next encounter support at the line of 1.0080, which is protecting the parity level. This is followed by support at the parity line, which has held steady since June and is a psychologically significant barrier. The final support level for now is at 0.9917.

I am  neutral on AUD/USD.

The month of March was kind to the Australian dollar, as the AUD/USD  gained closed to  two cents, but ran out of steam in  the last week in March. The Cyprus  crisis made investors jittery around the globe, and uncertain markets do not bode well for risky currencies like the Aussie.  We are unlikely to see any changes to rates by the RBA, so much will depend on the Retail Sales and Building Approval releases – if the numbers are solid, the Australian dollar will likely get a boost.

The Aussie sometimes moves in tandem with gold. You can trade binary options on gold using this technical analysis.

Further reading:

• For a broad view of all the week’s major events worldwide, read the USD outlook.
• For EUR/USD, check out the Euro to Dollar forecast.
• For the Japanese yen, read the USD/JPY forecast.
• For GBP/USD (cable), look into the British Pound forecast.
• For USD/CAD (loonie), check out the Canadian dollar forecast.