AUD/USD Outlook May 30 – June 3

The Australian dollar managed to gain ground for another week, after pulling from lows once again. The upcoming week is very busy, with GDP being the highlight. Here’s an outlook for the 14 events expecting us, and an updated technical analysis for AUD/USD.

The stabilization of commodity prices and the weakness of the US economy, as reflected in slow growth and rising unemployment, helped push the Aussie higher. Now the Aussie depends more on the Australian economy.

AUD/USD daily chart with support and resistance lines marked. Click to enlarge:

1. Company Operating Profits: Monday, 1:30. In the second quarter of 2010, Australian corporations made extraordinary gains in profits: 17%. But since then, profits have eroded and fell by 1.5% and 2.8%. After these disappointments in the second half of 2010, a correction is expected in Q1 with a small rise.
2. HIA New Home Sales: Tuesday, 1:00. The Housing Industry Association has shown a big leap in new home sales last month – 4.3%. This came after a few mediocre months, and was quite encouraging. A smaller gain is likely now.
3. Building Approvals: Tuesday, 1:30. This is one of the
4. more volatile indices out there. After two months f sharp drops, the number of approvals leaped by 9.1% last time. A smaller rise is expected now. This is the mos important release in a batch of publications, despite its strong moves.
5. Current Account: Tuesday, 1:30. The overall figure is published after the monthly trade balance releases. But the larger scope of time and components (trade balance is only goods) makes the release important. In Q3 and Q4 of 2010, the deficits in the current account were larger than expected. From -7.3billion, the deficit is expected to squeeze now.
6. Private Sector Credit: Tuesday, 1:30. Despite being somewhat overshadowed by other figures, this official indicator is also of high importance: more credit means more economic activity. The past two months exceeded expectations with strong rises of 0.6% each time. A smaller gain is due now.
7. AIG Manufacturing Index: Tuesday, 23:30. According to the Australian Industry Group, the manufacturing sector is squeezing. The survey of 200 manufacturers has risen to 48.4 points, but it’s still under the all-important 50 point line that separates contraction from growth.
8. Chinese  Manufacturing PMI: Wednesday, 1:00. Australia’s No. 1 trade partner always rocks the Australian dollar. The manufacturing sector in the economic giant has unexpectedly squeezed last month, to 52.9 points. This still means growth, but weaker than earlier. A small rise is expected now. Chinese growth is essential for Australia.
9. GDP: Wednesday, 1:30. Australia’s economy hasn’t been stable throughout 2010: A strong first half was followed by almost no growth in Q3: 0.1%. Q4 saw a return to strong growth: 0.7% and but this time, contraction is expected  in Q1 of 2011. Any result will rock the Aussie in this all important figure.
10. Commodity Prices: Wednesday, 6:30. Australia’s economy leans towards export of commodities, making this release meaningful. This year-over-year figure showed a rise of 32.3% last month, lower than earlier. A smaller rise is likely now.
11. MI Inflation Gauge: Thursday, 00:30. The Australian authorities release official inflation figures only once per quarter, so the figures from the Melbourne Institute fill the gap. After a big rise of 0.6% two months ago, a more modest gain of 0.3% was reported last time. It could be even lower now.
12. Retail Sales: Thursday, 1:30. The past month was quite worrying: consumers seem less confident, as they spent less. A drop of 0.5% was quite surprising after four months of steady gains. A small rise is expected now, as a correction.
13. Trade Balance: Thursday, 1:30. Slightly overshadowed by retail sales, but quite important as well, this figure can balance the picture. Australia’s trade surplus jumped last month and reached 1.74 billion. This was very encouraging. Another positive number is expected now, although it will likely be lower.
14. AIG Services Index: Thursday, 23:30. The second purchasing managers’ index from AIG is more important. After many months in contraction territory, the services sector returned to growth last month, with the score reaching 51.5 points, above the critical 50 point mark. It’s expected to stay the same levels now.

* All times are GMT.

AUD/USD Technical Analysis

The Australian dollar dropped as low as 1.0440, before starting an impressing recovery. The 1.07 line (discussed last week) was a tough line of resistance towards the end of the wekk.

Technical levels, from top to bottom:

High above but getting closer, the line of 1.1150 might serve as resistance. The fresh float era high of 1.1012 is already a more definite line of resistance, just above the round number of 1.10.

1.0850 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 proved to be quite strong just now and is of high importance. It’s followed by 1.0775 which was a previous weekly high but was only weak resistance now.

1.07 is a pivotal line once again, where the final battle was seen for a second week in a row. It provided some support a few weeks ago and returns to its role now. Support is now found at 1.0580, which capped the pair for long days and provided support just now. It will cushion any fresh falls.

The round number of 1.05 is less important support now, after being pierced through earlier. 1.0440 proved to be a very strong support line after being a swing low a few weeks ago and also now.

1.0390 was a distinctive line that worked in both directions at the beginning of April and is weak support now.  A stepping stone for the Aussie on its way up was 1.0315.

It is likely to be a stepping stone on the way down if the pair collapses. An important cushion is 1.0254, the 2010 high that is still far behind.

I remain bullish on the Aussie.

The fundamentals of Australia: a strong economy with a low unemployment rate and a high interest rate, support more gains. A surprise in GDP can boost the pair.

Further reading:

• For a broad view of all the week’s major events worldwide, read the  USD outlook.
• For EUR/USD, check out  the  Euro/Dollar forecast.
• For the Japanese yen, read the  USD/JPY forecast.
• For GBP/USD  (cable), look into the  British Pound forecast.
• For the New Zealand dollar (kiwi), read the  NZD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar
• For the Swiss Franc, see the  USD/CHF forecast.