It’s finally here, Mr. Aussie day and we are following him down on the forex dance floor as he dances against Ms. USA. Our bearish position on the AUD/USD pair was getting a heart attack beginning of the week. Now that the hottest economic gossip of the week is out, where could the pair be headed?
Economic Points – Australia
Australia and China relations
Reserve Bank of Australia (RBA) Governor Glenn Stevens was on the microphone beginning of Sydney session on Thursday, and he said China’s plan to free up its financial markets was a “big challenge” for the region, but one that would bring “considerable benefits” to Chinese savers and international investors.
You are probably asking why the heck is Australian Bank governor talking about China while he is in the spot light? For all the new Invest Diva/ Divos out there who have just joined our community, let me explain that China is Australia’s biggest trading buddy. The Land Down Under’s links with China have tightened as exports almost quadrupled in five years. That is why if China’s economy goes down, chances are that all the kangaroos and koalas will get dragged down with it.
Australia still remains dependent on its commodity exports such as iron ore – a large chunk of which goes to China. And aside from China’s own economic problems, many analysts are already projecting even lower iron ore prices due to oversupply, which is bad news for Australia.
Australia’s building approvals fall in June
Poor Mr. Aussie can’t take a break! Building approvals which is an important gauge of future construction activity dropped a whopping 12% from last months 2.3% to -8.2%, way worse than the expected -0.8%.
If you are thinking why this is a big deal, is because obtaining government approval is among the first steps in constructing a new building. Construction is important because it produces a wide-reaching ripple effect – for example, jobs are created for the construction workers, subcontractors and inspectors are hired, and various services are purchased by the builder.
On one bright side, keep in mind that it is now winter in Australia so it kinda makes sense that the Aussies don’t feel like getting out in the cold and aiming at building constructions. But none-the-less, Mr. Aussie doesn’t seem to be impressed by the news and is dancing towards the bottom of the forex dance floor against his major dancing partners.
Aussie Employment
The labor report for June was optimistic overall. The jobless rate ticked higher by 0.1% to 6.0%, but only because May’s estimate was revised from 6.0% to 5.9%. As for the labor force participation rate, it saw an uptick from 64.7% to 64.8%, which is good news since it means a larger percentage of the working-age population are now economically active.
The fact that more full-time jobs were created is a very good thing since full-time jobs generally offer higher wages and better security of tenure than part-time jobs and those, in turn, contribute to higher consumer confidence and spending. But could the employment alone rescue the Aussie economy? Given other Aussie data and it’s relationship with China, most long-term traders may be considering further drops in the Australian currency, as long as a surprise event doesn’t take us by surprise.
Economic Points – USA
Whoop, whoop, hurray! US GDP Accelerates
If there is one thing more important than the FOMC statement this week, it is the US Advanced GDP reading. U.S. economic growth accelerated in the second quarter as a pick up in consumer spending offset the drag from soft business spending on equipment, suggesting a steady momentum that could bring the Federal Reserve closer to hiking interest rates this year.
Gross domestic product expanded at a 2.3 percent annual rate, the Commerce Department said on Thursday. First-quarter GDP, previously reported to have shrunk at a 0.2 percent pace, was revised up to show it rising at a 0.6 percent rate.
September Rate Hike Could Still be on the Table
Read 5 important points about Fed’s July statement.
Technical Analysis
In my previous AUD/USD update we looked at the bell-shape still under construction in the monthly chart which could be an indication of further long-term drops for the pair. Looking at the AUD/USD daily forex dance floor (aka chart,) the pair remains within a falling channel below the Ichimoku cloud with the RSI below the neutrality area. Our bearish target is set at 0.7150 which is the low of 2008. Extended target is all the way down at 0.64.
Market Sentiment: Bearish
Forex Trading idea
Invest Diva students should already be in a bearish position. If you missed my lessons, look for a correction around 0.74 and sell.
Alternatively, if the pair suddenly decides to go nuts and move above the Ichimoku cloud we could see new rallies back towards the 23% Fibonacci at 0.8025
Where to set your stops and limits:
| Support Levels | Turning Point | Resistance Levels |
|---|---|---|
| 0.7150 | 0.76 | 0.8025 |
| 0.64 | 0.78 | 0.82 |
*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.
