AUD/USD FUNDAMENTAL OUTLOOK￼
AUD/USD declined in May giving back most of its gains made in April. The rate fell by -3.3% for the month overall in May. The decline in the pair was in part due to anticipation of the Fed raising U.S. interest rates in the near future, lower commodity prices and mixed economic numbers from both countries. The Australian economy showed improvements in the housing sector, with Building Approvals rising +2.8% m/m compared to an expectation of -1.7%, while Home Loans increased +1.6% versus +1.1% anticipated. On the negative side was Employment Change, which declined -2.9K versus an expected increase of +4.5K with the Australian Unemployment Rate gaining a notch to 6.2%.
The RBA left the Cash Rate unchanged at their latest meeting on June 2nd after lowering the rate by 25 bps to 2.0% in May. The central bank expressed concern over the housing market after a sharp increase in Sidney. In his Statement on Monetary Policy, 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 both likely and necessary, particularly given the significant declines in key commodity prices. Having eased monetary policy last month, the Board today judged that leaving the cash rate unchanged was appropriate at this meeting.”
U.S. economic data was also mixed in May with notable weakness in the industrial sector. Both Capacity Utilization and Industrial Production came out lower than expected while the Philly Fed Manufacturing Index printed at 6.7 versus 8.1 expected. Other indicators that failed to meet expectations in May were Retail Sales and the U.S. Trade Balance. On the plus side was Core CPI, which increased +0.3% m/m versus +0.2% expected, and Housing and Employment, which both showed improvements in May. The Fed did not have a meeting in May, but the minutes for the April meeting released on May 20th noted that, “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”
Traders will be watching the RBA’s Monetary Policy Meeting Minutes on the 16th and the FOMC rate decision on the 17th for better indications on interest rates and the exchange rate. Due to mixed conditions in both economies, the outlook for the rate is neutral in the near term and medium terms and higher long term.
|ECONOMIC CALENDAR Major Releases|
|5th US Non-Farm Payrolls, Unemp. Rate, OPEC Meetings|
9th Aus. NAB Business Conf., Home Loans, US JOLTS Job Op. 10th Aus. Westpac Consumer Sentiment, US Crude Oil Inv.
11th US Core Ret. Sales, Aus. Employment Ch., Unemp. Rate 12th US PPI, Preliminary UoM Consumer Sentiment
16th RBA Monetary Policy Meeting Minutes, US Bldg Permits 17th FOMC Statement, Econ. Projections, Press Conference 18th US CPI, Core CPI US Philly Fed Manuf. Index
22nd US Existing Home Sales
23rd US Core Durable Goods Orders, Australian HPI
24th US Final GDP, Crude Oil Inventories
25th US Initial Jobless Claims, Personal Spending
30th US CB Consumer Confidence
AUD/USD TECHNICAL OUTLOOK
After AUD/USD made a fresh long term low inside a medium term down channel at the 0.7533 level on April 1st, the rate then started rising correctively. It peaked at 0.8076 on April 28th before dipping down to 0.7715 on May 4th and then rising to 0.8163 on the 13th. AUD/USD then reversed most of its recent corrective rise by trading as low as the 0.7598 level on May 31st.
From a longer term perspective, AUD/USD has been falling correctively after rallying from the September 2008 low point of 0.6007 to its July 2011 post float high at 1.1080. The rate then formed a triangular pattern below that high and above the subsequent 0.9387 low of October 2011. That consolidation pattern broke down in May of 2013, sending the rate below its long term rally’s 0.9883 initial 23.6% Fibonacci retracement level. The rate then traded in the vicinity of the 0.9142 38.2% Fibo level from June 2013 to September 2014, before it again began selling off sharply after peaking at the 0.9505 level in June 2014. This drop saw AUD/USD break below first that 38.2% Fibo level, then its 50% Fibo level of 0.8544 in November 2014 and finally its key 61.8% Fibo level of 0.7945 in January of this year, as AUD/USD fell to a fresh long term low at the 0.7533 in early April. The rate’s subsequent correction higher has sent it briefly back above the 61.8% Fibo level, but it then relaxed back below it. The 76.4% and 78.6% Fibo levels now provide theoretical support at the 0.7204 and 0.7093 levels respectively.
AUD/USD remained under its falling 200 day Moving Average in May, which now reads at the 0.8208 level to support a bearish medium term outlook. Its 14-day RSI, now at 41.54, diverged at the rate’s most recent 0.8163 high, probably contributing to its fall.
Overall, AUD/USD’s near term outlook has turned bearish to match its medium term decline taking place within a falling channel pattern. Breaking its 61.8% Fibo level of its long term rally sets up targets at the 76.4% and 78.6% Fibo levels of 0.7204 and 0.7093.
|MAJOR LEVELS||Current level 0.7686|
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