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AUDUSD Outlook: Week of 2/2

by on March 1, 2014 8:02 pm BST
 

The upward trend in AUDUSD is rolling over after pushing lower from the consolidation period and closing the weak on the ascending trend line. Weakening fundamentals in Australia and China are causing the Australian dollar to push lower, and it is likely will continue to push through support and break lower.

Construction work completed in Australia, quarter-over-quarter, contracted by one percent and followed last’s quarter’s three percent increase. This inflation-adjusted measure shows the value of finished projects and has been weak since last May.

Private capital expenditures, quarter-over-quarter, vehemently performed under expectations, while declining by 5.2 percent versus analyst expectations of a one percent decline. This is a clear sign that private businesses are not putting capital to work and was the lowest reading since May 2009. Last quarter’s data was revised down from 3.6 percent to 2.6 percent. Private credit, month-over-month, remained somewhat elevated when compared to the yearly average, but the .4 percent print came in lower by one-tenth percent.

The continued disappointment in Chinese data is also having an effect on Australia. The Chinese measure of their manufacturing PMI data came in at 50.2 and matched analyst estimates. However, it is lower than the 50.5 seen in last month’s print. The manufacturing PMI conducted by the China Federation of Logistics and Purchasing tends to be higher than the independent reading by HSBC Holdings and Markit Economics, but sooner or later acknowledgement of contraction will be seen in non-independent sources.

The residual effects of weak data are being seen in the swap markets as traders speculate on a 36 percent change the Reserve Bank of Australia (RBA) will cut their benchmark rate from already historical lows of 2.5 percent by the end of August. According to Shinchinro Kadota, a FX strategist at Barclays PLC, said “there is no change in the situation where the Australian economy needs low interest rates and a weak currency with the resource investment boom over and the Chinese economy slowing.” The Australian dollar against the greenback fell as low as .8659, which was seen as encouraging by the RBA, but it didn’t stay there. If the market does not take it lower, the RBA is likely to force the Australian dollar lower as fundamentals continue to deteriorate.

AUDUSD on the daily chart looks increasingly weak as the largest move since September begins to turn over. The pair was consolidating between .8935 and .9065/70, but price action trended lower. Resistance was seen between .9025/30, and the pair traded lower. AUDUSD is grinding lower as former support is now the current resistance level. The 20, 50 and 72 EMAs are rolling over, which is a bearish indication.

Closing the week at .8928, AUDUSD is pressuring the current uptrend and a break through support at .8900 could give the new downtrend acceleration. Support levels are found at .8850 and .8770.  Resistance will be found at .9025/30 and .9065/70.

1D Chart of AUDUSD

1D Chart of AUDUSD