AUD/USD Forecast May 5-9

AUD/USD  was unchanged last week, as  the pair closed the week  at 0.9277.  This week’s highlights are Trade Balance, Retail Sales and the Cash Rate. Here is an outlook on the major market-movers and an updated technical analysis for AUD/USD.

It was a positive week for US releases, although the US dollar didn’t show any movement against the Aussie. The week ended with an excellent US Nonfarm Payrolls  release.  As well, manufacturing and consumer confidence indicators were solid. At the same time, Federal Reserve chair Janet Yellen remains cautious about the US economy. In Australia, PPI showed some strength and beat the estimate, but the week was otherwise uneventful.

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

1. AIG  Services Index: Sunday, 23:30. The index has cracked the 50-point barrier only once in the past two years, indicative of ongoing contraction in the  services sector.  The index came in at 48.9 points last month, and no significant change is expected in the April release.
2. MI Inflation Gauge: Monday, 00:30. Inflation Gauge is published each month, and assists analysts in tracking CPI, which is released on a quarterly basis. The indicator is pointing to weak inflation, with the past two readings posting a weak gain of 0.2%.
3. Building Approvals: Monday, 1:30. This key indicator tends to show sharp fluctuations, making accurate market estimates a tricky task. The April reading disappointed, with a decline of 5.0%, much worse than the estimate of -1.7%. The markets are expecting better news in April, with a forecast of a 1.3% gain.
4. ANZ Job Advertisements: Monday, 1:30. This indicator is an important  gauge of the health of the employment sector. The indicator has recovered from a host of declines, posting gains in the past two releases. Will this continue in the upcoming release?
5. Chinese HSBC Final Manufacturing PMI: Monday, 1:45. AUD/USD is sensitive to key Chinese indicators, such as PMIs, since China is Australia’s number one trading partner. Manufacturing PMI has posted three consecutive readings below the 50-point level, indicating contraction in the manufacturing sector. Little change is expected in the April release.
6. Trade Balance: Tuesday, 1:30. This is one of the most important indicators and should be treated as a market-mover. It is closely linked to currency demand, as foreigners must purchase Australian dollars in order to buy Australian goods and services. March posted a surplus of $1.20 billion, beating the estimate of $0.82 billion. Another surplus is expected in the upcoming release, with the estimate standing at $0.82 billion.
7. Cash Rate: Tuesday, 4:30. The benchmark interest rate is expected to remain at 2.50%, where it has been pegged since August 2013. Although the Australian dollar remains at high levels, the RBA has been reluctant to reduce rates in order to push the currency lower. The markets are not expecting any change to the rate, which will be announced in a statement from the RBA.
8. AIG Construction Index: Tuesday, 23:30. The index has been below the 50-point level in recent releases, pointing to contraction in the construction industry. No major movement is expected in the April release.
9. Retail Sales: Wednesday, 1:30. Retail Sales is the primary gauge of consumer spending, an important component of economic growth. The indicator posted a weak gain of just 0.2% in March, shy of the estimate of 0.4%. The forecast remains at 0.4% for the April release.
10. Employment Change: Thursday, 1:30.  Employment Change is one of the most important economic indicators, and an  unexpected reading can have a major impact on the movement of AUD/USD. In the previous release, the indicator posted a strong gain of 18.1 thousand, easily beating the  estimate of 7.3 thousand. The estimate for the upcoming release stands at 7.5 thousand. Will the indicator again surprise the markets and beat the prediction?
11. Chinese Trade Balance: Tentative. Trade Balance tends to show sharp fluctuations, making accurate estimates difficult. This was the case last month, as the indicator posted a gain of $7.7 billion, while the estimate stood at -$0.9 billion. The markets are expecting a strong recovery in April, with a forecast of $15.2 billion.
12. RBA Monetary Policy Statement: Friday, 1:30. The policy statement is released quarterly and provides insights into the Bank’s outlook on inflation and economic conditions. A statement that is more hawkish than expected is bullish for the Australian dollar.
13. Chinese CPI: Friday, 1:30. CPI jumped to 2.4% last month, close to the estimate of 2.5%. The key inflation index is expected to drop to 2.1% in April. A reading below the 2.0% level could raise concerns about a slowdown in the giant Chinese economy and negatively impact on AUD/USD.

*All times are GMT.

AUD/USD Technical Analysis

AUD/USD  opened the week at 0.9272 and quickly climbed  to a high of 0.9316.  AUD/USD  then  reversed directions,  dropping to a low of 0.9203, as support at 0.9180 (discussed last week) remained intact. AUD/USD closed at 0.9277.

Live chart of AUD/USD: [do action=”tradingviews” pair=”AUDUSD” interval=”60″/]

Technical lines from top to bottom:

We  begin with the round number of 0.99, a key resistance level. Next is 0.9794, which was last tested in June 2013.

There is resistance at the round number of 0.9700, which has held firm since October 2013. 0.9526 provided key resistance in November 2013 and has remained intact since that time. 0.9442  held firm as  AUD/USD pushed  above the 0.94 before retracting.

The line marked the high point of  the  pair in November, which saw the Aussie  go on a sharp slide and drop below the  0.89  line. 0.9368 was busy in April, but held firm as the Aussie had a quiet week.

This line starts the week as strong resistance. 0.9283 was briefly breached early in the week, but remains intact as a resistance line. 0.9180 is the first support level, continuing to provide strong support.

The round number of 0.9000 is a key psychological level. It has remained intact since early March. AUD/USD has posted impressive gains since then. 0.8893  is the next support line.

The final support level for now is 0.8728.  It  marks the low point of an Aussie  rally which began in early February and  saw the currency cross  above the 0.94 line.

I am  bearish on AUD/USD.

In the US,  there was positive  news on the  employment front late last week, with an excellent  Nonfarm Payrolls and a drop in the Unemployment Rate. So,  market sentiment towards the US dollar should be positive. If Australian retail sales  or employment data falls short of expectations, the Aussie could lose ground.

• 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 the Australian dollar (Aussie), check out the AUD to USD forecast.
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