AUD/USD: Trading the Australian Building Aug 2011

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The change in the number of new building approvals issued is an important indicator of the construction industry and for economic activity as a whole.

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

Published on Tuesday at 1:30 GMT.

Indicator Background

Strong growth in new building approvals indicates an expanding housing market, which in turn is a critical component of economic growth as well as consumer spending. Conversely, negative readings indicate a contracting housing market.

Five of the past six readings of the building approvals index have been in negative territory, with a precipitous decline in March 2011 of – 15.9%. However, the forecast for the Aug. 31 release is a 2.1% gain. The index has fluctuated wildly over the past 12 months, and this make accurate forecasting a tricky task.

Sentiments and levels

The index has been on a downward spiral for most of the past six months, and is overdue for a correction. A positive forecast of 2.1% for the Aug. 31 release bodes well for the Aussie. Thus, the overall sentiment is bullish on AUD/USD towards this release.

Technical levels, from top to bottom:   1.0775, 1.0700, 1.0600, 1.0530, 1.0420, 1.0314, 1.0254.

5 Scenarios

  1. Within expectations: +1.5% to +3.4%: In such a case, the AUD is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: +3.5% to +4.8%: An unexpected higher reading can send AUD/USD well above one resistance line.
  3. Well above expectations: Above 4.8%: The chances of such a scenario are low. Such an outcome would prop up the AUD, and a second resistance line might be broken as a result.
  4. Below expectations: -1.00% to +1.5%: A smaller gain than forecast or decrease could cause the AUD to drift and lose one level of support.
  5. Well below expectations: Under -1.00%: Given the recent downward trend in the index, a further decline is a possibility. In this scenario, the AUD will fall and could break a second resistance level.

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

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.

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