AUD/USD Forecast December 3-7

AUD/USD traded in a narrow last week, closing at 1.0424. The upcoming week is very busy, with 15 events. Here is an outlook of the Australian events, and an updated technical analysis for AUD/USD.

There were some positive figures out of Australia last week, as Private Capital Expenditure beat the estimate and New Home Sales looked sharp. However, this was not enough to enable the aussie to break out of a narrow range last week.

Updates: Manufacturing Index dropped to 43.6 points, a four-month low. MI Inflation Gauge came in at -01.%. It was the indicator’s first contraction since July. Retail Sales disappointed, posting a flat 0.0%. The estimate stood at a 0.4% gain. ANZ Job Advertisements improved in November, but still posted a decline of 2.9%. Company Operating Profits also dropped 2.9%, a notch below the estimate of -2.8%. Commodity Prices dropped by 11.6%, but this was an improvement over the previous reading of -16.0%. After two strong readings, Building Approvals plunged 7.8%. The estimate stood at -1.8%. The Current Account deficit widened to -14.9 billion Australian dollars. This was a bit higher than the estimate of -14.7B. Average Cash Earnings rose 0.2%, below the 0.4% estimate. As expected the RBA slashed its key interest rate by 0.25%, to an even 3.0%. This is the lowest interest rate level since 2009. The RBA explained its decision to lower the rate, citing higher wage pressures, a lower projected mining spending, and a higher unemployment rate. The central bank gave a negative assessment on its outlook for global growth, pointing to economic weakness in Europe and the uncertainty over fiscal policy in the US. GDP will be released tomorrow. The markets are expecting a second straight gain of 0.6%. The aussie has reacted positively to the interest rate cut, as AUD/USD was trading at 1.0477. Services Index climbed to a five-month high, rising to 47.1 points. GDP posted a gain of 0.5%, just below the estimate of 0.6%. RBA Deputy Governor Philip Lowe spoke in Sydney. RBA Assistant Governor Guy Debelle addressed the Melbourne Institute at an event in Melbourne. Employment numbers looked very sharp this month. Employment Change climbed 13.9 thousand, crushing the estimate of 0.2K. The Unemployment Rate dropped to 5.2%, from 5.5%. Construction Index will be released later on Thursday, followed by Trade Balance on Friday. The aussie has moved upwards on the positive data, and is testing the 1.05 line. AUD/USD was trading at 1.0494.

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

AIG Manufacturing Index: Sunday, 22:30. The manufacturing sector has been weak, with recent readings in the mid-40 point range. The index has not cracked the 50 point level, which indicates expansion, since February.
MI Inflation Gauge: Sunday, 23:30. This indicator provides a monthly measure of inflation. The Inflation Gauge posted a negligible gain of 0.1% last month, a three-month low.
Retail Sales: Monday, 00:30. This key indicator posted a 0.5% gain last month, its best reading since July. The markets are forecasting a slight drop in December, with an estimate of 0.4%.
ANZ Job Advertisements: Monday, 00:30. This volatile employment indicator plunged 4.8% in November, its worst decline since June 2011. Will the December release show some improvement?
Company Operating Profits: Monday, 00:30. Company Operating Profits has now reeled off three consecutive readings in negative territory. The markets are forecasting another decline in December.
Commodity Prices: Friday, 5:30. Commodity Prices have been in sharp down-slide, reflecting weak global demand for Australian commodities. The indicator declined by 16% last month, and the markets are not expecting better news anytime soon.
Building Approvals: Tuesday, 00:30. This indicator tends to be quite volatile, making accurate forecasts a tricky task. The indicator posted a strong gain of 7.8% in the previous release, but the estimate for December calls for a slight decline.
Current Account: Tuesday, 00:30. Current Account is released on a quarterly basis. The Current Account deficit narrowed in Q2, but the markets are braced for a wider deficit in the Q3 release.
Cash Rate: Tuesday, 3:30. The RBA has surprised the markets with its past two interest announcements, which had some impact on AUD/USD movement. The markets are anticipating a rate cut of 0.25%, which would lower rates to an even 3.0%. Will the market forecast prove to be correct this time around? The RBA will issue a Rate Statement after the Cash Rate is announced.
AIG Services Index: Tuesday, 22:30. The Services Index posted a reading of 42.8 points in November. The indicator has not been above the 50 point level since February, indicating sustained contraction in the services sector. The markets are not expecting any significant improvement in the December reading.
GDP: Wednesday, 00:30. In Q2, GDP posted a gain of 0.6%, which was slightly below the estimate. The forecast for Q3 is unchanged, at 0.6%.
RBA Deputy Governor Philip Lowe Speaks: Wednesday, 7:00. Deputy Governor Lowe will be addressing a business event in Sydney. Assistant Governor Guy Debelle at the Melbourne Institute on the same day. Coming just one day after the RBA interest rate announcement, analysts will be closely following the speeches of the two senior RBA officials.
Employment Change: Thursday, 00:30. After two strong releases, the markets are expecting a very modest change of just 0.2 thousand newly employed persons. The Unemployment Rate is expected to show a slight increase, from 5.4% to 5.5%.
AIG Construction Index: Thursday, 22:30. The Construction Index is in a deep-freeze, although the previous release showed some improvement, climbing to 35. 9 points. Will the index continue to improve in December?
Trade Balance: Friday, 00:30. The monthly Trade Balance has been posting deficits for most of 2012. The deficit is expected to widen in the December release, with an estimate of -2.15 billion dollars.

* All times are GMT

AUD/USD Technical Analysis

AUD/USD opened at 1.0457, and touched a high of 1.0489. The pair then dropped to a low of 1.0402, but was held in check by resistance at this level (discussed last week). AUD/USD closed the week at 1.0424.

We begin with resistance at 1.1012. This line has held firm since August 2011. Next is the line at 1.0874. We next encounter resistance at 1.0718, which has not been tested since March. Below, there is strong resistance at 1.0605, just above the round figure of 1.06. This is followed by resistance at 1.0508, which has held firm since mid-September.

AUD/USD is receiving weak support at 1.0402. This line held firm as the pair weakened slightly last week. Next, there is support at 1.0326. This line has strengthened as the pair trades at higher levels. This is followed by support at 1.0230. Below, there is support at 1.0174, which has held firm since early October.

This is followed by 1.0080, which is protecting the psychologically important parity level. The parity line, last tested in June, is the next line of support. We next encounter support at 0.9917. The final support line for now is 0.9815, which has held firm since June.

I am bullish on AUD/USD.

Although the AUD/USD has been marked by range trading for the past month, traders should bear in mind that the aussie has been making slow but steady progress, having gained around three cents against the greenback since early October. After some encouraging US data, some releases, such as employment, have not been strong. The looming fiscal crisis in the US will likely impact on the movement of the pair. In all likelihood, some kind of compromise will be reached on Capital Hill, which would be US dollar negative, and increase the demand for riskier currencies like the Australian dollar.

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

Kenny Fisher

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. Kenny's Google Profile

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