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AUD/USD Forecast October 21-25 – Aussie Climbs to 4-Week High

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AUD/USD posted sharp gains last week, climbing 1.0%. The upcoming week is quiet, with three events. Here is an outlook at the highlights and an updated technical analysis for AUD/USD.

Australia posted solid employment data in September, which boosted the Australian dollar. The economy created 14.7 thousand jobs, which was short of the forecast of 15.3. The unemployment rate ticked lower to 5.2%, down from 5.3% a month earlier.

In the U.S., retail sales contracted in September. The headline reading declined by 0.3%, after a gain of 0.4% in the previous release. Core retail sales declined 0.1%, missing the estimate of 0.2%. There was more dismal news, as Philly Fed Manufacturing Index dropped to 5.6 in October, compared to 12.0 points in the previous release.
AUD/USD daily graph with support and resistance lines on it. Click to enlarge:
  1. CB Leading Index: Tuesday, 14:30. The Conference Board Index is based on 7 economic indicators, but tends to have a muted impact since most of the data has been previously released. The index declined by 0.2% in July.
  2. Flash Manufacturing PMI: Wednesday, 22:00. The index slowed to 49.4 in September, falling below the 50-level and into contraction territory. We now await the October data.
  3. Flash Services PMI: Wednesday, 22:00. The services sector improved to 52.5 in September, indicative of slight expansion. This comes after a reading of 49.2 in the August release, which showed contraction in the services sector.

*All times are GMT

Technical lines from top to bottom:

We start with resistance at 0.7165. This line has held firm since early April.

0.7085 was a low point in September. 0.7022 is next.

0.6988 marked the low point in April.

0.6865 is under pressure in resistance following strong gains by AUD/USD last week.

0.6825 (mentioned last week) has switched to a support role. It is a weak line.

0.6744 has some breathing room in support.

0.6686 was a cap back in January 2000.

0.6627 has held in support since March 2009. 0.6532 is next.

0.6456 is the final support level for now.

I remain bearish on AUD/USD

The Aussie jumped on the bandwagon and took advantage of a weak U.S. dollar, but this could be a temporary improvement. The U.S-China trade war continues to hamper Australia’s export industry and the recent rate cuts by the RBA have made the Australian dollar less attractive to investors.

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AUD/USD forecast and technical analysis ► preview of the major events that will move the Australian Dollar (A$) in the upcoming week.  Here are some general data. Scroll down for the latest AUD/USD outlook

Aussie/USD characteristics

The Aussie is a “risk-on” currency. It usually rises when commodities and stocks advance and when the risk appetite improves. Its fate deteriorates when the markets are in “risk aversion” mode: geopolitical worries increase and the outlook for global demand is sluggish.

The Aussie’s technical behavior is usually admirable. This implies respecting lines of resistance and support, diagonal trend lines, etc. AUD/USD has become more popular for techies in recent years, even after the financial crisis which brought the famous “carry trade.” to a halt.

Australia exports metals such as copper and iron. We often find a positive correlation between the price of iron ore and the Aussie $. The mining boom kept Australia out of recession for over 25 years. The land down under enjoyed the high resources demand with China playing a key role. While peak investment is probably behind us, the sector still churns out quite a lot of raw materials, as China has a soft landing.

AUD/USD Recent Moves

The Reserve Bank of Australia clarified it will not change interest rates anytime soon, but they tend to lean to cutting rates. This is due to low inflation. The labor market was looking good early in the year but now looks more complicated.

Risks could arise from the Chinese economy: Australia’s No. 1 trading partner could see a slowdown after the Party Congress in October 2017. So far, things look stable, but 2018 could be different.

Latest weekly AUD/USD forecast

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