AUD/USD Outlook – August 1-5

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After breaking to new ground, Aussie traders expect a very busy week. Among the 12 events, the rate decision draws the most attention. Here is an outlook for the Australian events, and an updated technical analysis for AUD/USD.

The main drivers of the Australian dollar were fresh quarterly inflation figures. Rising prices mean that rates hikes could come much sooner than expected. Will it be as early as now?

Update: The Aussie has been hit by global worries and the stock markets meltdown. Trichet’s weak move also contributed.

AUD/USD daily chart with support and resistance lines on it. Click to enlarge:AUD USD Chart August 1 5 2011

  1. AIG Manufacturing Index: Sunday, 23:30. The Australia Industry Group provides an early indicator for the busy week. Its PMI-like index has shown that the manufacturing sector finally returned to growth, with the score rising above 50 points to 52.9. A small slide is likely now, but the score will likely remain above 50. Actual: 43.4 points – very disappointing.
  2. Chinese Manufacturing PMI: Monday, 1:00. Australia’s main trade partner is slowing down. Some fear it will undergo a big bust, but in the meantime, we see a soft landing. In the past months, manufacturing growth has eased, with a score of 50.9 last month. According to an independent survey by HSBC, China already began contracting. The official number will likely show continued growth, with the score very close to 50. Actual 50.7 points, as expected.
  3. HIA New Home Sales: Tuesday, 00:00. After a few volatile months, the number of new sales has stabilized in recent months, with small changes seen in recent months. After a drop of 0.2% last month, a small rise is likely now. Actual -8.7 – very bad.
  4. Building Approvals: Tuesday, 1:30. Although this is a very volatile indicator, it is still very highly regarded and tends to rock the Aussie. A huge drop of almost 8% was recorded last month, raising the talk of real estate bust once again. Looking at previous months, this is just part of the see-saw. A rise is likely now. Actual – 3.5% – another disappointment.
  5. Trade Balance: Tuesday, 1:30. Slightly overshadowed by building approvals, the trade balance surplus is expected to ease once after surprising last month and reaching 2.33 billion. Actual +2.05 – within expectations.
  6. HPI: Tuesday, 1:30. Contrary to previous housing sector figures, this one is quarterly, yet somewhat late, and the current release is overshadowed by other figures. A small rise is expected after the big fall of 1.7% seen in Q1. A big surprise will make an impact, but the building approvals release will likely set the tone. Actual  -0.1%.
  7. Rate decision: Tuesday, 4:30. Glenn Stevens’ RBA is likely to express a more hawkish stance this time. Rising inflation, as reflected in both PPI and CPI, opens the door for rate hikes during 2011. Some even expect a rate hike now. It is important to note that the RBA made surprise rate hikes in the past. In such a case, the Aussie will leap. Unchanged rate – soft outlook.
  8. Commodity Prices: Tuesday, 6:30. Australia’s economy is commodity-oriented, making every change in prices important for the economy and the currency. A double-digit year-over-year rise is likely now. Actual  +27.6%.
  9. AIG Services Index: Tuesday, 23:30. The second figure from AIG is a more important one, for the services sector. According to the group, this sector fell back to contraction in the past two months, after one month of growth. The score of 48.5 will likely by followed by a stronger one, but a jump above 50 is unlikely. 48.8 – as expected.
  10. Retail Sales: Wednesday, 1:30. This important consumer gauge made a disappointing correction in May, with a drop of 0.6%. A small rise is likely in June. Actual -0.1% – a small disappointment.
  11. AIG Construction Index: Thursday, 23:30. The worst evidence of a depression in Australian real estate can be seen here: with levels under 40, contraction is extreme. A rise from last month’s terrible 35.8 points is expected.
  12. RBA Monetary Policy Statement: Friday, 1:30. Last but not least, the Reserve Bank of Australia provides a quarterly statement that includes economic forecasts and also hints about interest rates. In the current timing, it provides a very important supplementary to the statement at the rate decision.

* All times are GMT.

AUD/USD Technical Analysis 

The Australian dollar was capped by the 1.0888 line (discussed as potential breaking point) at the beginning of the week. But when it broke higher, it was unstoppable. The previous float era high of 1.1021 was broken and the pair reached new highs, although eventually closing lower, just under 1.10.

Technical levels, from top to bottom:

The new float era high of 1.1080 is the new peak. Above this line, its uncharted territory, with 1.12 being a potential resistance line.

Looking lower, 1.1021 provided resistance once again, after the pair fell lower, and is still of importance.  Below, 1.0920 is now support. It cushioned the fall of the pair, once again now, as it did earlier in the year.

1.088 proved to be a strong line just now, separating ranges. It already had a chance to work in both directions – capping the pair on the way up, and later temporary halting the pair on the way down. It was a swing high in May.

1.0775 was a key resistance level before the surge, and now switches positions. It was the top border of a wider range.. The round number of 1.07 provided support after being broken. It is a minor line.  1.0620 is another minor line..

1.0580 is the next line, which worked as excellent support now. It capped the pair for long days. Its role is minor now after being pierced through on the way down as well as on the way up. The round number of 1.05 managed to cushion another fall, and remains of high importance..

1.0440 proved to be a very strong support line after being a swing low a month and also recently, although it is slightly weaker now.  1.0390 was a distinctive line that worked in both directions at the beginning of April and is weak support now.

I remain bullish on AUD/USD.

With inflation on the rise in the land down under, a rate hike can come as early as this week. Even without a hike, the Australian economy is doing well, and the currency may rise even if the European mess continues.

Further reading:

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.