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The Australian dollar  took a tumble, losing close to three cents against the US dollar this week. The pair dipped below the parity level,  before closing at 1.0021. This week’s highlight is the Annual Budget Release.  Here is an outlook of the events and an updated technical analysis for AUD/USD.

In a surprise move, the RBA cut interest rates to 2.75%, and reiterated that it remained concern about the high value of the Australian dollar. The Aussie responded by dropping sharply. Although Australian employment numbers looked sharp, this was not enough to stem the sharp downward slide.

Updates: AUD/USD managed to cling on to parity, but eventually fell to new lows under 0.9950. More on big release:  The Aussie budget. The dollar is giving back a bit, and this helps the Aussie recover from the lows, although crossing parity is quite a challenge. Update: the Australian government forecasts a big deficit – AUD/USD tumbles. Home Loans surged 5.2%, blowing past the estimate of 3.8%. NAB Business Confidence dropped to -2 points, its worst showing  in 2013. New Motor Vehicle Sales, an important consumer spending indicator, will be released on Wednesday. The Aussie continues to fall, and the pair tested the 99 line earlier on Tuesday. AUD/USD was trading at 99.18. AUD/USD continues to tumble down, as low as 0.9860 on more dollar strength and also on some weak data from down under: the Wage Price Index rose by 0.7%, lower than 0.8% that was expected. New Motor Vehicle Sales dropped by 1.6%. And, John Taylor, CEO of FX Concepts, sees a much bigger fall for the Aussie: a drop to 0.90 in a conservative view, and in a brave view, he sees AUD/USD at 0.60. What do you think? More:  AUDUSD Bearish; Wait On Pull-back For New Shorts (Elliott Wave Analysis). The prices of commodities slide, and this pushes AUD/USD to new lows towards the 0.98 level. The Aussie has had a brutal month of May, plunging about five cents against the US dollar. The pair has lost about 150 points this week, dropping below the all-important parity level. AUD/USD was trading  at 0.9846. More: Forex Analysis: AUD/USD Continues Dramatic Plunge to Establish New Lows. The downfall of the Australian dollar continues. AUD/USD dropped well below 0.9750 before only partially recovering. The Aussie isn’t falling only against the dollar, but it also lost critical levels against others. Here is an update about the collapse of AUD, with charts and analysis for 5 currencies. The fresh AUD/USD Forecast will be released during Sunday, May 19th.

In the meantime, following the big collapse, here is a review of the fall, and a guide to the next big levels.

AUD/USD graph with support and resistance lines on it. Click to enlarge:   AUD USD Forecast May 13-17

  1. Home Loans: Monday, 1:30. After two straight declines, Home Loans bounced back and posted a strong increase of 2.0% in the April reading. The markets are expecting even better news in the upcoming reading, with an estimate of 3.8%.
  2. NAB Business Confidence: Monday, 1:30. Business Confidence has been in positive territory throughout 2013, and improved to 2 points in April. The markets will be hoping for more good news in the May release.
  3. Annual Budget Release: Tuesday, 9:30. The annual budget release is the highlight of the week, and should be treated as a market-mover. Analysts will carefully comb through the budget, in particular the spending, borrowing and income levels that  projected by the government.
  4. New Motor Vehicle Sales: Wednesday, 1:30. This indicator is an important measure of consumer confidence and spending, as new vehicles are an expensive purchase for consumers. The indicator has not looked strong, with only one gain in 2013. The previous reading was a disappointing decline of 0.6%, and the markets will be hoping for a turnaround this time around.
  5. Wage Price Index: Wednesday, 1:30. This is a leading indicator of consumer inflation, as labor costs in incurred by businesses are generally passed on to consumers. The index rose  0.8% in April, and the forecast is unchanged for the upcoming reading. Will the index meet or beat the prediction?

AUD/USD Technical Analysis

AUD/USD opened at 1.0297, and  climbed to a high of 1.0307, as the resistance line at 1.0326 (discussed last week) remained intact. Then the roof caved  in, as the pair plunged, dipping below  parity, as it touched a  low of 0.9961. The pair closed the week at 1.0021.

Technical lines from top to bottom:      

With  AUD/USD falling  sharply,  we  start at lower levels. The pair faces  resistance at 1.0508. Next is  1.0416, which served  in a  support role throughout much of April. This is followed by resistance at 1.0326, which  held firm this week. Below, there is resistance at 1.0260. This is followed by 1.0174, which  had  provided support since March. The next line of resistance is at 1.0080.

AUD/USD is receiving support at the all-important parity level. The pair briefly broke through this line at the end of the week, and could see further activity early next week. Next, there  is support at 0.9907.  This is followed by 0.9795, which has held firm since June 2012. We next encounter support at 0.9627, which has held since June 2012. The final support level for now is at 0.9541, which has remained intact since September 2011.

I  continue to be  bearish on AUD/USD.

The RBA took action and cut interest rates and has not closed the door to more reductions. Many analysts have considered the Aussie as overvalued, so this week’s correction may have been drastic, but was not a shocking development. There are reports that George Soros has taken a large short position on the Australian dollar, and there are bearish views coming out of other quarters, such as hedge fund manager Stanley Druckenmiller. The market is sensitive to these kinds of reports, and we could see the pair again test the parity level next week.

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

Further reading: