AUD/USD Forecast: US, Australian Economy & Technical Analysis
Mr. Aussie (Aussie dollar, AUD) has been the center of attention on the forex dance floor this week with top tier economic events coming out from Australia and China. Ms. USA (US dollar, USD) has been on an adventure of her own, as we get closer to the final interest rate decision of the year. So pairing up the two, what should we expect from the AUD/USD pair? Here are five points to help you out.
1- RBA keeps interest rates on hold
It is hard to get a white or chilly Christmas in the Land Down Under but Reserve Bank of Australia (RBA)'s governor Mr. Glenn Stevens has been able to give our mates the chills by freezing the interest rates for seven months at 2%. This was RBA's final meeting of 2015 so say Sayonara to any other surprise rate decisions for the time being!
The decision to hold was widely expected by Invest Divas, but in the accompanying statement, Mr. Stevens said the low inflation outlook "left scope for further easing of policy, should that be appropriate to lend support to demand".
2- Stevens says Australian economy has done well to avoid the disruption
Despite the freeze on the rates, Aussie policy makers chose to focus on the green shoots on the economy as they did in their previous meeting. Mr. Stevens said the Australian economy is adjusting well to falling commodity prices and declining resource investments.
He acknowledged Australia's terms of trade, or export prices relative to import prices, could fall further as demand for resources from China wanes and increased supply of minerals continues to come on line. Still, the outlook for the national economy continues to be for moderate growth, he said.
That is why Mr. Aussie rallied on the forex dance floor. But is the rally here to stay? Let's look at more forex points.
3- Australia's trade balance and retail sales coming up
Aussie trade balance is expected to be out on Thursday at 1:30 AM GMT first thing during the Sydney session. Since the Australian economy relies heavily on its trade activity, the trade balance release also tends to have a strong impact on Mr. Aussie. In particular, strengthening exports could be bullish for the Aussie while declining shipments could spur a bearish forex reaction. So Thursday's announcement could impact the AUD moves depending on the results.
Aussie retail sales report is scheduled for Friday to round up Mr. Aussie's dance moves for the week. Just like trade activity, consumer spending also contributes a huge chunk to Australia’s overall economic growth so strong data could push Mr. Aussie further up against his forex dancing partners such as Ms. USA.
4- U.S. Jobless Claims and NFP reports coming up
It takes two to tango and forex pairs are not an exception to the rule. So in order to boost up our AUD/USD forecast, we also need to know about the US dollar, and US economy. Unless you only follow the Kardashian news, you probably know that the Federal Reserve policy makers have been widely expected to hike interest rates during their December policy meeting. Not only has U.S. economic data been showing consistent improvements, but the decision-makers over at the FOMC themselves actually confirmed that the central bank is on track for a liftoff before the end of the year.
Now this isn’t exactly big news for forex trader, as most market watchers had already been pricing in expectations for a Fed rate hike for the past few months. Besides, Fed officials have been emphasizing that their tightening cycle would be a slow one, which suggests that it may take a long while before they follow up with another rate hike.
However, any downbeat reports reminding traders that succeeding rate increases ain’t set in stone just yet could keep the dollar’s gains in check. This brings us to Friday's Non-Farm Payrolls (NFP) report. The NFP report is inherently important because it gauges the overall health of the U.S. labor market.
For November’s employment situation, forex traders are expecting non-farm payrolls to increase by 200K, which is a bit lower than the previous 271K increase and the 12-month average of 239K. The unemployment rate, meanwhile, is expected to hold steady at 5.0%. As for the average hourly earnings, it’s expected to increase by 0.2%, which is a slower increase when compared to the previous month’s 0.4%, but an increase is always good news.
A worse than expected result could push Ms. USA (US dollar) lower against her dancing partners including Mr. Aussie. That would mean up-moves for the AUD/USD pair.
Keep in mind that the important Aussie/ American economic data are all coming out throughout Thursday and Friday so we could expect some sick AUD/USD dance moves.
5- AUD/USD testing resistance
The AUD/USD pair confirmed above the Ichimoku cloud for the first time in six months, and is now testing a resistance level at around 0.7350. With the combination of the Aussie/ American fundamentals pointing to more AUD/USD gains, our extended bullish target sits at 23% Fibonacci retracement level at 0.75.
A break about 0.75 within 2015 is highly unlikely however, since Australia's economy is not bound for full recovery any time soon.
Adding the fundamentals and technicals to our Diamond Analysis bowl, the pair seems to have an up-ward pressure.
Bullish Scenario: Keep an eye on 0.7350 and the economic report results. A break above 0.7350, better than expected Aussie economic data and worse than expected US economic data would strengthen the bullish scenario. Target a little below 0.75
Bearish Scenario: A failure to break above 0.7350 could indicate further range trading for the pair. In that case, our best bearish targets sit on 0.7180 and 0.70 n extension.
Either way, if the pair goes against your trade, be patient, as forex pairs always move in cycles in a long run!
Here are the recommended supports and resistance levels* for short term forex trading strategies:
|Support Levels||Turning Point||Resistance Levels|
In any case, set your stop loss and profit targets a little loose from the below levels, because the naughty currency pairs sometimes change their mind right before a psychological level just to piss the forex trading crowd off. This technique helps you avoid getting kicked out of your trading position prematurely.
*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.