AUDUSD Outlook: Week of 2/23

by on February 22, 2014 5:28 pm BST

AUDUSD closed lower on the week, only slightly positive one session of five. The pair followed suit with NZDUSD and fell roughly 100 pips as risk appetite was shaky the last week. The pair retested resistance at .9070 and was rejected strongly, closing the week at .8977. The Australian dollar was hit hard as the HSBC flash manufacturing PMI showed that China’s manufacturing contracted for the second month in a row. This  poses a threat as China is Australia’s largest trade partner and depends highly on the strength of the Chinese economy for their rich natural resources.

The Australian auto industry has taken a hit, too. New motor vehicle sales fell 3.5 percent in February from 1.4 percent last month, which was revised lower from 1.7 percent. The start of 2014 has been a rocky one as last year seen a record 1.14 million automobile sales. Toyota announced that it would be leaving Australia, following suit with Ford and Holden (part of General Motors). The small-scale factories make mass-production not possible, thus parts are expensive. This coupled with the second highest industry worker wages, behind Germany, make margins slim.

The G20 meetings are hosted this weekend in Australia, and Australian Treasury Joe Hockely believes that central banks around the world are creating unneeded volatility in emerging economies, which has can have a direct impact on Australia’s commodity exports. “I think if there is a policy of no surprises in relation to monetary policy activity and that central banks around the world have reasonable warning of what may be events that create market volatility, I think that’s not unreasonable,” he said.

It is in Australia’s best interest to try and broker economic stability through sound central bank policies and economic reforms. The lack of global growth and demand has greatly affected the Australian economy. The Organization of Economic Co-Operation and Development (OECD) said that advanced economies grew less from 2012 to 2013, 1.5 percent versus 1.3 percent.

The daily chart of AUDUSD has price action closing just above the 50 EMA, with the 20 EMA acting as additional support. However, the sharp turnaround is threatening the current downtrend. Price action support is seen at .8920, meeting up with the ascending trend line. However, a break through .8900 to .8890 will compromise the uptrend. Below the uptrend break, .8850 will be seen as the first line of support in a new downtrend.

If support holds up, the pair can pullback to 72 EMA, or .8990, while .9000 acting as whole-number resistance. It remains to been seen if the US dollar can carry its strength through to next week. There is a potential bearish +/- DMI crossover that could accelerate price action to the downside.

1D Chart of AUDUSD

1D Chart of AUDUSD

Economic data is light next week for AUD, but Wednesday’s private capital expenditures QoQ report will be vital for price action. Analysts are forecasting a sharp decline with expectations of a decline of one percent opposed to the previous gain of 3.6 percent. A better than expected number could send AUDUSD to key resistance levels. Lower than expected print will send the pair through key support and signal the downtrend.