AUD/USD started the week with sharp drops due to the China crisis, but recovered and ended the week with modest losses. The pair closed the week at 0.7170. The upcoming week is a busy one, with 14 events on the schedule. Here is an outlook on the major market-movers and an updated technical analysis for AUD/USD.
The Aussie took a tumble early in the week in response to the financial meltdown due to the Chinese stock market crash. AUD/USD recovered most of these losses by week’s end. In the US, Preliminary GDP beat expectations but home sales and consumer sentiment disappointed.
[do action=”autoupdate” tag=”AUDUSDUpdate”/]AUD/USD graph with support and resistance lines on it. Click to enlarge:
- MI Inflation Gauge: Monday, 00:30. This indicator is released monthly, and helps analysts track inflation, as CPI, the primary gauge of consumer inflation, is released on a quarterly basis. The indicator edged higher in July, posting a modest gain of 0.2%.
- HIA New Home Sales: Monday, 1:00. This housing inflation index provides a snapshot of the level of activity in the housing sector. The index rebounded in June, coming in at 0.5%.
- Company Operating Profits: Monday, 1:30. This indicator is released each quarter, magnifying the impact of each release. The indicator posted a 0.2% gain in Q1, within expectations. However, the markets are bracing for a decline of 1.9% in Q2.
- AIG Manufacturing Index: Monday, 23:30. The index pushed above the 50-point level in August, for only the second time in 2015, with a reading of 50.4 points. Will the index remain above 50 in the upcoming release?
- Chinese Manufacturing PMI: Tuesday, 1:00. The Australian dollar is sensitive to Chinese key data such as Manufacturing PMI, as China is Australia’s largest trading partner. The PMI remains steady and came in at 50.0 points, in July within expectations. The forecast for the August report stands at 49.8 points.
- Building Approvals: Tuesday, 1:30. Building Approvals tends to show sharp fluctuation, leading to readings that are often nowhere near the forecasts. This was the case in June, as the reading of -8.2% was much worse than forecast of -0.8%. The markets are expecting a strong turnaround in July, with an estimate of +3.0%.
- Current Account: Tuesday, 1:30. The current account deficit widened in Q1 to A$-10.7 billion, within expectations. The markets are expecting a much larger deficit in Q2, with a forecast of A$-15.9 billion.
- Caixin Final Manufacturing PMI: Tuesday, 1:45. The PMI remains under 50, indicative of contraction in the manufacturing sector. The July reading slipped to 47.8 points, short of the estimate of 48.3 points. The downward trend is expected to continue in August, with an estimate of 47.2 points.
- Cash Rate: Tuesday, 4:30. The benchmark interest rate is expected to remain at 2.00% when the RBA sets rates for September. The rates have been set at this low level since May.
- Commodity Prices: Tuesday, 6:30. Commodity Prices continues to post sharp declines, as global demand remains weak and China is experiencing a slowdown. The July reading posted a decline of 20.2%, and another sharp decline is likely in the August release.
- GDP: Wednesday, 1:30. GDP is one of the most important economic indicators, and an unexpected reading can have a dramatic effect on the movement of AUD/USD. The indicator improved to 0.9% in Q1, beating the estimate of 0.7%. However, the Q2 reading ix expected to be softer, with a forecast of 0.4%.
- AIG Services Index: Wednesday, 23:30. the index has posted two straight readings above the 50-point level, which separates contraction from expansion. The July reading improved to 54.1 points, the strongest showing since February 2014.
- Retail Sales: Thursday, 1:30. Retail Sales is the primary gauge of consumer spending, a key driver of economic activity. The indicator improved to 0.7% in June, marking a 4-month high. The July forecast stands at 0.4%.
- Trade Balance: Thursday, 1:30. The trade deficit widened in June to A$2.93 billion, but this was better than the estimate of a deficit of A$3.06 billion. The deficit is expected to widen in July, with an estimate of A$3.10 billion.
* All times are GMT.
AUD/USD Technical Analysis
AUD/USD opened the week at 0.7252 and quickly touched a high of 0.7275. The pair then plunged, dropping as low as 0.7020, as support held at 0.7011 (discussed last week). AUD/USD closed the week at 0.7170.
Live chart of AUD/USD: [do action=”tradingviews” pair=”AUDUSD” interval=”60″/]
Technical lines from top to bottom:
We begin with resistance at 0.7597. This line was an important support level in June.
0.7438 is the next resistance line.
0.7346 was an important cap in July 2004.
0.7266 continues to be busy and switched to a resistance role as the pair lost ground.
0.7113 had held firm since April 2009, but was tested last week. It is currently an immediate support level.
0.7011 was a key support level in March 2006. It is protecting the symbolic line of 0.70.
0.6931 is the next support line.
0.6843 is the final support level for now. It has held firm since May 2009.
I am bullish on USD/AUD
The Chinese slowdown pushed the Australian dollar close to the symbolic level of US 70 cents, and with Australian economy heavily dependent on China, the pair could lose more ground. The Fed is not rushing to make any moves, but monetary divergence continues to favor the US dollar.
In our latest podcast we explain what’s going on with EUR and China before previewing the big events ahead:
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 to Dollar forecast.
- For the Japanese yen, read the USD/JPY forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Canadian dollar (loonie), check out the Canadian dollar forecast.
- For the kiwi, see the NZDUSD forecast.
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