AUDUSD Outlook: Week of 3/19

by on March 16, 2014 3:34 pm BST

AUDUSD seen has down the majority of last week, even given the best full-time employment numbers since 1991 as traders aimed to exit risk positions going into the weekend. The dollar sold-off at the tail end of the week giving the Aussie dollar a slight boost, but the rally was sold as price action hit .9100, which still remains elusive.

Australian data was mixed as the National Australian Bank Ltd. business sentiment gauge fell from 9 to 7. Business confidence slumped due to a combination of softening in manufacturing, wholesale and services industries. The overall labor market weakness is still weighing on consumer demand. The survey data continues to show the divergence of reality and optimism.

The Westpac consumer sentiment index fell .7 percent from 100.2 to 99.5. The decline in March has contributed to a 10.9 percent drop in sentiment since last November’s high. Data showed that consumers are still fearful of the future outlook for the economy and labor market. A sub-index that measures near-term economic sentiment within the next 12-months fell 4 percent in March, following a 7.1 percent drop in February and the lowest level since December 2011.

Although these indicators cited employment as a key factor, Australia posted the largest gain in full-time employment in February, adding 80,500 to the full-time sector. Although, nearly 30,000 part-time jobs were axed bringing the total to 47,300. This, however, far exceeded analyst general consensus of 15,000 jobs added. According to Michael Turner, debt strategist at Royal Bank of Canada, said “we suspect hiring’s picked up and the labor force data is starting to get more consistent with that. But while unemployment is still at 6 percent there’s still a fair bit of slack to be eaten up before the RBA starts normalizing policy.”

The markets love better than expected prints that cause knee-jerk reactions, but there is a lot of volatility in the Australian labor market. Large monthly gains are, typically, followed by employment losses. 2013 was a good example of that. It will be important for employment to gain traction and create a trend whether then leave you guessing because that leads to uncertainty.

Australian Employment and Trend

Australian Employment and Trend

Price action remains on the  ascending trend line, although it briefly pushed through on Wednesday. Strong resistance remains at .9100 as price action attempted to overtake the level multiple times last week and failed to close beyond this level (it also attempted to break through on March 6 and 7 but failed to close above).

Additional resistance is set at .9152, which is a probable upside target if traders can push the AUDUSD higher. Support will likely be tested at .8955, which could threaten the current uptrend. Secondary resistance is located at .8890. Key levels remain intact as the pair has been relatively range bound recently.

Reserve Bank of Australia (RBA) monetary policy minutes release is set for Monday, and this could be the catalyst for break the Aussie dollar out of range.  It is uncertain how traders will take RBA Governor Glenn Stevens’ view on the economy, policy and Australian dollar outlook. Stevens basically gave up on “jawboning” the Australian dollar lower and affirming that a rate cut is not in the works anytime soon. If Monday is much of the same, the AUDUSD should have the momentum to break through key resistance.

1D Chart of AUDUSD

1D Chart of AUDUSD