AUD/USD: Trading the Australian Building Jan 2013

Australian Buildings Approvals is considered  one of the most important  indicators in the construction industry.  It  measures the change in the number of new building approvals issued. A reading that is higher than the market prediction is bullish for the Australian dollar.

Here are all the details, and 5 possible outcomes for AUD/USD.

Published on Thursday at 00:30 GMT.

Indicator Background  

The indicator helps provides anaslysts with a snapshot of the Australian construction sector. An increase in building approvals indicates an expansion of construction activity, which in turn is a critical component of economic growth.

Building Approvals  tends to be quite volatile,  making accurate forecasts a  tricky task. The indicator dropped 7.6% in December, much lower than the forecast of a 1.8% decline. The markets are expecting a sharp turnaround in January, with an estimate of a 4.0% gain.

Sentiments and levels

The fiscal cliff was indeed a dollar negative event, but the greenback quickly rebounded and made sharp gains against currencies such as the yen and euro. The aussie managed to avoid this last week, but the US dollar could make up some lost ground. As well, US employment numbers  last week  were not strong, and unease about the US economy could send investors to the safety of the US dollar, at the expense of the riskier Australian dollar. Thus, the overall sentiment is bearish on AUD/USD towards this release.

Technical levels, from top to bottom:    1.0718, 1.0605, 1.0508, 1.0424, 1.0326 and 1.0230.

5 Scenarios

1. Within expectations: 3.7% to 4.3%: In such a case, the  AUD/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 4.4% to 4.7%: An unexpected higher reading can send  the pair  above one resistance line.
3. Well above expectations: Above 4.7%: Such an outcome would prop up AUD/USD, and a second resistance line might be broken as a result.
4. Below expectations: 3.3% to 3.6%: A sharper decrease than forecast could  push  the pair below one level of support.
5. Well below expectations: Below 3.3%: A very weak  reading  could cause AUD/USD to drop, possibly breaking a second  support level.

For more about the Aussie, see the AUD to USD forecast.