AUD/USD FUNDAMENTAL OUTLOOK￼
AUD/USD resumed its downtrend in March, declining by -2.5% for the month overall. The loss in the rate was in part due to continued expectations of an FOMC rate hike as early as June, asset flows favouring the Greenback over the Aussie, as well as mixed economic data reported from both countries. Australia began the month reporting better than expected Building Approvals, which increased +7.9% m/m compared to an expected decline of -1.8%, nevertheless, Home Loans declined by -3.5% m/m versus -1.9% expected. Employment Change in March was in line with expectations at 15.6K, while the Australian Unemployment Rate declined to 6.3% from 6.4%.
The RBA left its benchmark Cash Rate unchanged at 2.25% in March and at their latest meeting on April 7th. In the Statement on the Monetary Policy Decision, RBA Governor Glenn Stevens noted that, “The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems likely, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy. At today’s meeting the Board judged that it was appropriate to hold interest rates steady for the time being.”
U.S. numbers in March were also mixed, showing significant improvement in employment. Last month’s NFP number showed an increase of +295K jobs in February. Also, New and Pending Home Sales showed gains, while CPI and PMI numbers were also better than expected. On the negative side were Retail Sales, Durable Goods Orders and Final GDP, which all failed to meet expectations. The FOMC omitted the word “patience” from its rate statement last month, but downwardly revised estimates on GDP and CPI for the rest of the year. In a speech by Fed Chair Janet Yellen given on March 27th, Yellen stated that, “The Committee’s decision about when to begin reducing accommodation will depend importantly on how economic conditions actually evolve over time. Like most of my FOMC colleagues, I believe that the appropriate time has not yet arrived, but I expect that conditions may warrant an increase in the federal funds rate target sometime this year.”
Traders will be watching Australian Employment Change on the 16th and the FOMC Statement on the 29th for a better indication on the direction of the rate. Due to continued weak commodity prices and improving economic conditions in the U.S., the outlook for the rate continues to be negative in all time frames.
|ECONOMIC CALENDAR Major Releases|
|10th Australian Home Loans, US Import Prices|
14th Aus. NAB Business Confidence, US Core Retail Sales, PPI
15th Aus. Westpac Consumer Confidence, US Industrial Prod.
16th Australian Employment Change, Unemployment Rate, US Building Permits, Philly Fed Manufacturing Index, G20 Mtgs
17th US CPI, Core CPI, Prelim UoM Consumer Sent, G20 Mtgs
21st Aus. RBA Monetary Policy Meeting Minutes
22nd Aus. CPI, Trimmed Mean CPI, US Existing Home Sales
23rd US New Home Sales, Initial Jobless Claims
24th US Core Durable Goods Orders, Durable Goods Orders
28th US CB Consumer Confidence
29th FOMC Statement, Fed Funds Rate, US Advance GDP
30th Aus. Import Prices, US Initial Jobless Claims
AUD/USD TECHNICAL OUTLOOK
AUD/USD fell again during March within down channel pattern that has prevailed since the June 2014 peak of 0.9505. The rate made a fresh recent low at the 0.7533 level on April 1st before bouncing to the 0.7728 level, hovering over a medium term down trend line.
Longer term, AUD/USD has been trading lower for the last three years after a long term rally from a 0.6007 low seen in September 2008 to a 1.1080 post float high of July 2011. The rate then consolidated within a triangular pattern below that high point and above the subsequent 0.9387 low of October 2011. That sideways pattern broke down in May 2013, prompting rate to also break its long term rally’s 23.6% Fibonacci retracement level of 0.9883. The rate then traded in the vicinity of the 38.2% Fibo level from June 2013 to September 2014, and then commenced its present notable drop in September 2014 from the 0.9505 level. This down move gained momentum once it broke the trend line connecting the lows of 0.9387 and 0.8660, sending AUD/USD below its 38.2% Fibo level in September of last year, then below its 50% Fibo level of 0.8544 in November and finally breaking its key 61.8% level of 0.7945 in January. The rate is currently consolidating below that 61.8% Fibo level, with the 76.4% and 78.6% Fibo levels at 0.7204 and 0.7093 respectively now providing theoretical support.
AUD/USD stayed below its falling 200 day Moving Average in March, which currently reads at the 0.8520 level to yield a bearish medium term outlook. Also, its 14-day RSI failed to support the rate’s most recent 0.7533 low by showing bullish regular divergence versus its former 0.7560 low. It now reads at 49.42 in central neutral territory that should not impede moves either way.
Overall, AUD/USD’s near term drop continues but RSI divergence indicates waning downside momentum that could provoke a correction/consolidation phase. The longer term outlook is bearish while AUD/USD remains below its 61.8% Fibo level of 0.7945 toward the 76.4% and 78.2% Fibo levels at 0.7204 and 0.7093.
|MAJOR LEVELS||Current level 0.7708|
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