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After failing to break to new record highs against the greenback, the going got tough and the Aussie took a dive. The upcoming week will see the all-important employment figures, as well as other Australian market movers. Here is an outlook for these events, and an updated technical analysis for AUD/USD.

Update Monday, 22:30 GMT: Fears are extreme in the markets and is surrendering to the US dollar. AUD/USD Parity is in sight

Update, Tuesday,August 9, 22:12 GMT: The Aussie enjoyed the late rally in US stock markets and is challenging the 1.0390 resistance line. This is a roller coaster! Earlier, it dipped below parity. The commitment by the Fed to hold interest rates low until mid 2013 eventually sent risk currency like the Aussie higher.

Update, Wednesday, 19:30 GMT: The Aussie managed to weather the second storm market better than the first, but is still pressured under 1.0254. The pair is awaiting the all important job figures. See how to trade AUD/USD with the employment change release.

Update, August 11th, 13:30 GMT: The Aussie is trading lower, suffering from disappointing employment figures: the unemployment rate rose to 5.1%, while the number of jobs remained flat.

The statement that accompanied the rate decision was slightly more dovish than expected, weighing on the Aussie. While both a rate hike and a rate cut are possible, the worries expressed about the global economy were evident. And we certainly have reasons to worry  in Europe, and now in the US, with the S&P downgrade.

AUD/USD daily chart with support and resistance lines marked. Click to enlarge:Australian dollar USD Chart August 8 12 2011

  1. ANZ Job Advertisements: Monday, 1:30. This unofficial measure of job advertisements in newspapers provides a good gauge for the official employment numbers published later in the week. ANZ reported a rise of 3.7% in jobs last month, and this was later reflected in official numbers. A smaller rise is expected now.
  2. Home Loans: Tuesday, 1:30. After three months of drops in home loans, the past two months saw nice and steady rises of 4.5% in average. A drop is expected now. Any result will shake the Aussie, which is sensitive to housing figures.
  3. NAB Business Confidence: Tuesday, 1:30. Though somewhat overshadowed by home loans, business confidence can also rock the currency. According to NAB, business confidence was balanced at 0 last month, after 5 months of positive numbers, indicating improving conditions. A return to rises is likely now.
  4. Westpac Consumer Sentiment: Wednesday, 00:30. Contrary to businesses, consumers are less confident: Westpac has shown three consecutive drops in consumer confidence, with the recent 8.3% plunge being the most painful. A correction, with a rise, is expected in this 1200 strong survey.
  5. MI Inflation Expectations: Thursday, 1:00. With official inflation numbers published only once per quarter, the Melbourne Institute provides an up to date gauge, for July. Expectations have ticked up to 3.4% last month, and they are predicted to remain at this level. A jump will raise the chances for a rate hike.
  6. Chinese  Trade Balance: Wednesday, 4:00. Australia’s no. 1 trade partner enjoyed a huge surplus in its trade balance, 22.3 billion in June. A smaller figure is expected now. A higher surplus will help the Aussie.
  7. Employment data:  Thursday, 1:30. The best is kept for last. After two disappointing months that saw job losses, the Australian job market returned to strong growth. 23,400 were created in June. A similar number is likely now. Regarding the unemployment rate, it also remains very low, at 4.9% for the past 4 months. A drop to 4.8% won’t be surprising.

* All times are GMT.

AUD/USD Technical Analysis

Aussie/dollar began the week with an attempt to break above the recent float era high of 1.1080 (discussed last week). The move then turned into an avalanche – a failed recovery attempt stopped at the 1.0775 line, before the collapse found support only around 1.0390.

Technical levels, from top to bottom:

The peak of 1.1080 is now quite far in the distance, and isn’t expected to be challenged soon. It is followed by the previous  high of 1.1021 had the chance to work as support before the collapse.

Below, 1.0920 returns to its role as resistance. It cushioned the fall of the pair for another time – the pair bounced off this line before plunging again.  1.088 proved to be a strong line in recent weeks, separating ranges. Its role is minor now.

1.0775 was a key resistance level before the surge, and the top border of long running range. A few recovery attempts failed to breach this strong line.  The round number of 1.07 was temporary support. It is a minor line.

1.0620 is another minor line, which worked as resistance for a short while.  1.0580 is the next line of struggle. It capped the pair for long days.

The round number of 1.05 quickly turned into a resistance line after being broken, and remains of importance.  .10440 was temporary support, resuming its role from a few months ago.

1.0390 was a distinctive line that worked in both directions at the beginning of April and proved to be strong support now. It is followed by 1.0314, which was resistance at the beginning of the year.

Further below, the 2010 high of 1.0254 is support, and its not too far. The round number of 1.02 capped a range before the pair took off. It’s followed by 1.0080, on the way to parity.

I remain bullish on AUD/USD.

Despite the global sell off (started by Trichet) all types of risky assets, including the Aussie, the local economy is still doing well. A positive jobs report and some stabilization in the markets can help it rise. If the negative atmosphere continues, the Aussie will find it hard to rise, even if good domestic data is released.
The US downgrade is likely to give the Aussie a small blow at first – the Aussie is a risky asset and it might be sold off. In the long run, the Aussie has reasons to rise and can enjoy a more steady drop in the greenback.
James Chen provides interesting technical analysis for this breakdown.

Further reading: