AUD/USD Outlook – January 2015

AUD/USD FUNDAMENTAL OUTLOOK

AUD/USD extended its previous month’s losses declining another – 3.7% in December. The steep drop in the rate was in part attributed to continued lower commodity prices, expectations of higher U.S. interest rates and asset flows favouring the Greenback over the Aussie. Australian economic data in December was mostly better than expected, some notable exceptions such as quarterly GDP, which showed a growth rate of +0.3% compared to +0.7% that was expected. Also, Westpac Consumer Sentiment showed a decline of -5.7% versus a previous reading of +1.9%.

Positive numbers for the Australian economy in December had Employment Change show an increase of +42.7K jobs versus +15.2K expected while the Trade Balance in November showed a deficit of -0.93B versus an expected deficit of -1.59B. The RBA left its benchmark Cash Rate at 2.5% in December with no rate decision in January and will hold its next interest rate meeting on February 3rd.

US numbers in December were mostly mixed with gains in Final GDP, Retail Sales and weekly Initial Jobless Claims. On the negative side, Existing and New Home Sales as well as PPI and CPI were all lower than expected in December.

On January 7th, the FOMC Meeting Minutes for its December meeting stated that, “The sharp decline in oil prices weighed on inflation compensation and left a mixed imprint on other asset markets. On net, yields on longer-term Treasury securities fell, corporate bond spreads widened, equity prices were little changed, and the foreign exchange value of the dollar appreciated. Economic data releases reinforced the views of market participants that the U.S. economic recovery continued to gain momentum. In addition, investors appeared to read the October FOMC statement as suggesting a slightly less accommodative path for future monetary policy than they had previously expected.”

Traders will be looking to US Non-Farm Payrolls on the 9th, Australian Employment Change on the 14th and the FOMC Rate Decision and Statement on the 28th for a better indication on the direction of the exchange rate.

Due to continued improvement in the US economy and the possibility of higher US interest rates, the outlook for the rate continues to be lower in the near and medium term and neutral in the long term.

ECONOMIC CALENDAR Major Releases

8th Australian Retail Sales, US Initial Jobless Claims
9th US Non-Farm Payrolls, Unemployment Rate
11th Australian ANZ Job Advertisements, Home Loans
13th US JOLTS Job Openings, 10-y Bond Auction
14th Aus. Employment Change, US Core Ret. Sales, Ret. Sales
15th US PPI, Core PPI, Philly Fed Manufacturing Index
16th US CPI, Core CPI, Prelim UoM Consumer Sentiment
20th Aus. Westpac Cons. Sent, US NAHB Housing Mkt Index
21st Aus. MI Inflation Exp., US Bldg Permits, Housing Starts 22nd US Initial Jobless Claims
23rd US Existing Home Sales, Flash Manufacturing PMI
27th US Core Durable Goods Orders, New Home Sales, Aus. CPI, NAB Business Confidence, Trimmed Mean CPI
28th FOMC Statement, Fed Funds Rate
30th US Advance GDP, Advance GDP Price Index

AUD/USD TECHNICAL OUTLOOK

AUD/USD traded generally lower after peaking at 0.9401 on Sept. 4th of last year. Shortly after that high, the rate broke down from its prevailing medium term trading range to eventually find support at the 0.8643 level on October 2nd. After a subsequent consolidation phase, the rate then started moving sharply lower again and has thus far fallen down to the 0.8032 level on January 6th.

From a long term perspective, AUD/USD has been correcting lower over the last three years following an extended rally from a 0.6007 low of September 2008 to a post float high of 1.1080 seen in June of 2011. The rate then fell to 0.8660 in January of this year, just shy of the 0.8544 50% Fibonacci retracement level of its previous long term rise. It subsequently corrected back above the 0.9142 38.2% Fibo level, whereupon an extended 0.9202 to 0.9505 trading range ensued. After breaking down from that range last September, its downside momentum took AUD/USD beyond its 0.8899 range break target to 0.8540, just below the 50% Fibo level at 0.8544. After bouncing to 0.8911, the rate then breached the 50% Fibo level last November, and is now proceeding toward the key 61.8% Fibo level at 0.7945, having fallen as far as the 0.8032 level thus far. The rate has also now fallen below support seen at the declining trendline drawn between key lows at 0.9387 and 0.8660, thereby adding to the bearish tone for the Aussie.

AUD/USD extended its already considerable divergence below the level of its 200 day Moving Average in December. That key indicator now reads at the 0.9011 level and has a falling slope supportive of a bearish medium term outlook for AUD/USD. Also, its 14-day RSI is showing regular bullish divergence just above oversold territory at the 31.09 level, which could impede declines.

Overall, AUD/USD’s medium term outlook remains bearish toward the nearby 61.8% Fibonacci retracement level at 0.7945, although bullish divergence versus the RSI signals waning downside momentum that could provoke a near term bounce.

MAJOR LEVELSCurrent level 0.8085
Resistance 0.8215
Resistance 0.8356/92
Resistance 0.8540/78
Support 0.8066/82
Support 0.8032/35
Support 0.7988/0.8008

Contact Te’a Truong at OzForex on +61 2 8667 8062 or email tea.truong [@] ozforex.com.au or REGISTER HERE

Share
Tweet
Share