AUD/USD Outlook Feb. 6-10

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The Australian dollar continued to strengthen against the dollar, climbing over 100 pips, and reaching just shy of the 1.08 level. The upcoming week is extremely busy, with nine indicators being released. Here is an outlook for the Australian events, and an updated technical analysis for AUD/USD.

The Australian economy, with its great dependence on exports, has been hit hard by the global economic slowdown, but now finds itself well-prepared for an improvement in the global economy, especially that of the US. The aussie has benefitted from this, and has been an exceptional performer in 2012.

Updates: Australian retail sales disappointed with a fall of 0.1%, but the ANZ job ads figure leaped by 6%, providing a lot of hope for a good official figure. The Greek drama limits the pair’s gains. The RBA surprised by keeping rates unchanged. Perhaps the positive US NFP report helped. The Aussie leaped above 1.08, the highest level in 6 months. Aussie/dollar certainly holds above 1.08. It also got some help from Bernanke. See this video about commodity currencies. The Aussie was somewhat hit by the drop in Chines imports of iron ore and the drop in exports. The RBA’s report conditioned stable policy on strong exports. So, cuts cannot be ruled out. AUD/USD lost the 1.07 line.

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

  1. MI Inflation Gauge: Sunday, 11:30. This inflation index is released monthly, so it shows less volatility than the quarterly CPI. The index has hovered very close to the zero level over the past few months. The previous reading recorded a 0.5% increase, which was the highest figure since April 2011.
  2. Retail Sales: Monday,00:30. The indicator has fallen for three consecutive months, with each of these readings below the market expectation. The January reading came in at a disappointing 0%. The market forecast for this month is up to 0.2% If the indicator has another poor reading and dips into negative territory, the aussie could drop.
  3. ANZ Job Advertisements: Monday, 00:30. The indicator contracted by 0.9% last month, indicating weakness in the job sector. Another drop will indicate further weakness, and fewer jobs translates into less consumer spending, hurting the economy.
  4. AIG Construction Index: Monday, 10:30. This indicator is based on a survey of 120 construction companies as to their views on business conditions. The indicator is still in contraction mode, recording 41 this past month. On the positive side, this was the first reading over the 40 level since last March, and was the third consecutive rise. Will the indicator continue on this upward trend?
  5. Cash Rate: Tuesday, 3:30. This interest rate indicator is important for traders, as interest rates have a direct impact on exchange rates. The forecast are usually right on the money for this indicator. The market prediction is for a decrease to 4%, down from 4.25%.
  6. RBA Rate Statement: Tuesday, 3:30. The central bank uses this opportunity to state its rate decision and discuss economic and monetary conditions. Analysts scrutinize the statement for any hint of a a trend concerning interest rate policy.
  7. Westpac Consumer Sentiment: Tuesday, 11:30. This consumer indicator is marked by great volatility, making accurate market forecasts difficult. The past reading shot up 2.4%, after recording a contraction of 8.4% the month before. Will the indicator again signal positive feedback from the Australian consumer?
  8. Chinese CPI: Thursday, 1:30. Inflation has dropped for five straight months in China, Australia’s most important trading partner. The markets are calling for another slight decrease, a signal that the ec0nomic slowdown in China continues.
  9. Chinese Trade Balance: Friday, publication time tentative. Traders should handle with care the market forecasts for the Chinese trade balance, as media leaks often lead to inaccurate forecasts. The markets are predicting a sharp drop to 10.6B, which would be the lowest reading since May 2011.

* All times are GMT.

AUD/USD Technical Analysis

AUD/USD continued its upward trend this week. The pair opened at 1.0654, and dropped to a low of 1.0526. The aussie then rallied, breaking the  resistance line of 1.0775 (discussed last week) and climbing just shy of the 1.08 level, touching 1.0794. The pair closed at 1.0755, for a gain of 100 pips for the week.

Technical levels from top to bottom:

We begin with 1.1009, just above the psychologically important level of 1.10. Next is the resistance level of 1.0990, which was last tested in August 2011. This is followed by strong resistance level of 1.0884. Next, the line of 1.0775, which was breached this week, is providing resistance to the pair. This is followed by 1.0610, a weak support line. Below, is the round number of 1.05, which served as support in May and June and is now back in that role. It is followed by the 1.0383 line, which had recently served as strong resistance, and now is acting in a support role.

The round number of 1.03 has been tested throughout January, and is strengthening in support as the aussie continues to rally. Next is the support line of 1.0250. This is followed by 1.02, a major support level. Below, 1.0080 is providing support, protecting the all-important parity level. Finally, strong support is seen at the round number of 0.99.

I am neutral on AUD/USD

The Australian dollar had another strong week against the greenback, and the aussie continues to shine in 2012. At the same time, economic fundamentals in the US are clearly better than those in Australia, and a correction in AUD/USD seems overdue. Can the aussie’s stellar performance continue?

Further reading:

Get the 5 most predictable currency pairs

About Author

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.