AUD/USD Forecast October 1-5

AUD/USD was range-bound this week. The Australian dollar was down slightly, as the pair closed around the 1.0375 line. The upcoming week is  very busy, with 12 events on the schedule. Here is an outlook of the Australian events, and an updated technical analysis for AUD/USD.

Economic data was mixed out of the US this week. Housing figures were weak, but employment data was stronger than expected.

Updates: The Manufacturing Index dropped to 44.1 points, as manufacturing activity continues to contract. MI Inflation Gauge posted a modest 0.2% gain. This was down from 0.6% in the previous release. Chinese Manufacturing PMI came in at 49.8 points, almost matching the estimate. In a surprise move, the RBA lowered interest rates by 0.25%, to a level of 3.25%. This marked the lowest  key interest rate level  since October 2009. The RBA defended the cut as necessary in the wake of slower Chinese growth and continuing economic weakness in Europe. Commodity Prices continued its lengthy nosedive, as the indicator fell by 14.9%. Services Index will be released later on Tuesday. The aussie remained steady despite the rate cut. AUD/USD  was trading at 1.0312. Services Index was down slightly, coming in at 41.9 points. The indicator was last above the 50.0 level in October 2011. HIA New Home Sales posted its second straight decline, dropping 5.3%. Trade Balance looked very sluggish, posting a deficit of 203 billion dollars. The estimate had stood at a deficit of 0.69B.  The aussie’s sharp slide since the interest rate cut continues. The pair is testing 1.02, and was trading at 1.0215. Building Approvals rebounded from a dismal August reading, climbing 6.4%. This easily beat the estimate of 4.8%. Retail Sales gained a modest 0.2%, falling short of the market forecast of 0.5%. The Construction Index will be released later on Thursday. The index has been mired below the 35.0 level since May. AUD/USD remains rangebound, trading at 1.0224.

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

  1. AIG Manufacturing Index: Sunday, 23:30. The index has been below the 50.0 point line since February, indicating ongoing contraction in the manufacturing sector. Will the index show some improvement in October?
  2. MI Inflation Gauge: Monday, 00:30. The inflation index jumped 0.6% in the September reading, its highest level in 2012. Another strong reading would indicate  an increase in  economic activity.
  3. Chinese Manufacturing PMI: Monday, 1:00. This PMI dropped to 49.2 points in September, but the markets are expecting it to rebound to the important 50.0 point level in October. Traders should pay close attention to this index, as China is Australia’s number one trading partner.
  4. Cash Rate: Tuesday, 4:30. The RBA has maintained the rate at 3.50% since June. No change is expected this month.
  5. RBA Rate Statement: Tuesday, 4:30. The Rate Statement accompanies the Cash Rate announcement. A statement that his more hawkish than forecast is bullish for the aussie.
  6. Commodity Prices: Tuesday, 6:30. Commodity Prices continue to suffer from the global slowdown, and have posted negative readings since May. Will the downward spiral continue in October?
  7. AIG Services Index: Tuesday, 23:30. The services sector is a sore spot in the economy, having only managed to cross the 50.0 point line once in 2012. The markets are expecting another weak reading in October.
  8. HIA New Home Sales: Wednesday, Tentative. This indicator is tends to be volatile, making accurate predictions a tricky task. The indicator fell 5.6% in the previous release. The markets will be hoping for a strong reading this month.
  9. Trade Balance: Wednesday, 1:30. Trade Balance, a key indicator, has posted mostly deficits since March. Another small deficit is expected in the October release.
  10. Building Approvals: Thursday, 1:30. This important indicator is also marked by sharp volatility. Building Approvals shot up 17.3% in the August reading, stunning the markets which had predicted a decline. The estimate for the October release stands at a respectable 4.8% gain.
  11. Retail Sales: Thursday, 1:30. Retail Sales looked very weak in the previous release, dropping 0.8%. This marked the worst reading since December 2010. The markets are expecting a turnaround this month, with a forecast of 0.5%.
  12. AIG Construction Index: Thursday, 23:30. The construction sector  remains mired in a deep slump, with the previous reading at 32.2 points. Will the index show some improvement in October?

* All times are GMT

AUD/USD Technical Analysis

AUD/USD opened at 1.0420. The pair touched a low of 1.0328, and later hit a high of 1.0474. The pair ended a quiet week at 1.0376, as resistance at 1.0482 (discussed last week) held firm.

We  start with resistance at 1.1080. This is followed by 1.0977, which is protecting the important 1.10 line. Next is resistance at 1.0874. This line has held firm since August 2011. Below, there is resistance at 1.0718, which last saw action in March.

Next, there is strong resistance at 1.0605, just above the round figure of 1.06. This is followed by resistance at 1.0557, which has held steady over the past couple of weeks. Below, 1.0482 held firm as the aussie pushed up at the end of the trading week, before retracting. Next, there is weak resistance at 1.0402. The aussie broke through this line as it dropped below the 1.04 line at week’s end. This line could face further testing this week.

AUD/USD is receiving weak support  at support at 1.0340.  This line looks to be tested if the aussie continues to weaken. The next line of support is at 1.0230. This line was last breached in early September, when the Australian dollar began an impressive rally. Below, there is support at 1.0174, which has held firm since late July.

This is followed by support at 1.0080, protecting the psychologically important parity level. The parity line, last tested in June, is the next. The final support level for now is at 0.9917.

I am bearish on AUD/USD.

The  Australian dollar  was full steam ahead in the first half of September. Since then, however, it has showed some weakness.  Recent PMI data has not been  strong, and the Aussie  could lose if we see more weak data out of China. As well, if the US economy continues to under-perform, investors  may abandon risky currencies such as the Australian dollar, in favor of the safety of the greenback.

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

Further reading:

Kenny Fisher

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.