AUD/USD Outlook May 14-18

Despite a strong start to the week, the Australian dollar  lost  100 pips, as AUD/USD  moved towards parity,  closing  at 1.0018. The upcoming week has seven releases. Here is an outlook for the Australian events, and an updated technical analysis for AUD/USD.

The Australian dollar continues to tumble in May. The government announced spending cuts following the interest rate cut, and the aussie has been in full swoon as a result.

Updates: Home Loans were up sharply, posting a release of 0.3%. This was much better than the market estimate, which stood at -1.8%. RBA Deputy Governor Lowe delivered a speech in Melbourne. Analysts are sure to look for clues as to the central bank’s future monetary policy, after the surprise 0.50% cut in interest rates earlier in the month. The aussie is flirting with parity, as AUD/USD was trading at 0.9999. The central bank released its Monetary Policy Meeting Minutes from its most recent meeting. After an outstanding  figure in April of 4.0%, New Motor Vehicle Sales dropped sharply, posting a reading of -0.7%. This was the indicator’s first negative reading since January. Consumer Sentiment climbed into positive territory for the first time in two months, posting a reading of 0.8%. The Wage Price Index recorded a reading of 0.9%, matching the market forecast. AUD/USD has dropped closer to the 0.99 level, and was trading at 0.9916. Inflation Expectations came in at 3.1%, slightly below the April reading of 3.3%. AUD/USD dropped below the 0.99 level on Wednesday, falling to a low of 0.9871,  but has recovered, and was trading at 0.9918.

AUD/USD graph with support and resistance lines on it.

Click to enlarge:    

  1. Home Loans: Monday, 01:30. Home Loans slumped in April to an 11-month low, dropping by 2.5%. However, this was actually considerably better than the market forecast of -3.5%. The May estimate stands at -1.7%.
  2. RBA Deputy Gov Lowe Speaks: Monday, 2:25. The markets will be listening carefully to the Deputy Governor of the central bank for any clues as to future interest rate policy. A speech that is more hawkish than expected is bullish for the aussie.
  3. Monetary Policy Meeting Minutes: Tuesday, 1:30.  This key indicator is a  record  of the  central bank’s most recent meeting.Given the recent unexpected cut in interest rates of 0.50%, the report  could make for interesting reading.    
  4. New Motor Vehicle Sales: Tuesday, 1:30.The indicator shot up 4% in April, a seven-month high. Another strong performance would show strong consumer confidence, and could boost the Australian dollar.
  5. Westpac Consumer Sentiment: Wednesday, 00:30. This consumer index dropped by -1.6% in April, but this was a strong improvement from March. Will the index climb into positive territory in May?
  6. Wage Price Index: Wednesday, 1:30. This quarterly index rose 1% in February, its best result since February 2011. A similar reading is expected in May.
  7. MI Inflation Expectations: Thursday, 1:00. This indicator measures consumer expectations about the inflation rate over the next 12 months. The indicator recorded a reading of 3.3% last month, the first time it was above 3% since October 2011.

* All times are GMT

AUD/USD Technical Analysis

AUD/USD opened at 1.0120. The pair reached a high of of 1.0220,  but then dropped sharply, breaking through strong resistance at 1.0080  (discussed last week), and falling to a low of 1.0018, where it closed for the week.  

Technical levels from top to bottom:

We  begin  with the resistance  line of  1.0724, which has held firm since early March. This is followed by strong resistance at 1.0650.

Next, there is resistance at 1.0525, which saw a lot of movement by the pair in March. Below, 1.0402, which  recently was in a support role,  is now providing the pair with strong resistance.

Close by, 1.0340 was repeatedly tested in April, and is now in a resistance role. Next, the line of 1.0230, which had held firm in support since January, is now providing resistance. This line is strengthening as AUD/USD trades at lower levels.

Below, the pair broke through strong resistance at 1.0080, which  had been  protecting the all-important parity level. This  line  was last  breached in December 2011. Below parity is the line of 0.9964, a strong support level dating back to December 2011. It could be tested if the pair breaks through the parity line.

Next, 0.9917 is providing strong support to the pair. This is followed by 0.9860, which has held firm since last November. The final line for now is 0.9780, which has not been tested since March 2011.

I am bearish on AUD/USD.

The Australian dollar is known for its volatility, and to characterize the movement of AUD/USD in 2012 as a roller coaster, would not be an exaggeration in the least. After a spectacular run in January, the aussie has given up a remarkable 4 cents in the month of May. What’s next for the pair? Given the turbulence an uncertainty in Europe, investors will be looking for peace and quiet, and safe havens such as the US dollar fit the bill nicely. The aussie may continue to struggle, and   we could see the pair test the crucial parity line.  

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.