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AUD/USD Forecast Feb. 4-8 – Investor Optimism Boosts Aussie

Summary

The Australian Dollar enjoys optimism at home.

But the Chinese situation is worrying.

The first RBA decision for 2019 stands out.

The Australian dollar posted gains of close to 1%, as AUD/USD hit 7-week highs last week. The RBA will be in focus, with the release of a rate statement. Here is an outlook for the highlights of this week and an updated technical analysis for AUD/USD.

In the U.S, employment numbers were mixed. Nonfarm payrolls posted huge gains above the 300K mark for a second successive month. However, wage growth fell to 0.1%, down from 0.4% a month earlier.

Australian CPI edged up to 0.5% in Q4, after three successive gains of 0.4%. Trimmed Mean CPI remained pegged at 0.4%. Year-on-year on inflation came in at 1.8%, shy of the RBA’s target of 2.0%.

AUD/USD daily graph with support and resistance lines on it. Click to enlarge:

  1. MI Inflation Gauge: Monday, 00:00. The Melbourne Institute releases this monthly report, which mimics the quarterly CPI release. The December score of 0.4% was the highest since April 2018.
  2. Building Approvals: Monday, 00:30. The indicator tends to record sharp swings, making accurate estimates difficult. In November, the indicator plunged 9.1%, compared to an estimate of -0.3%. A gain of 2.1% is expected in December.
  3. AIG Services Index: Monday, 21:30. The services sector slipped to 52.1 points in December, pointing to weak expansion.
  4. Retail Sales: Tuesday, 00:30. This key indicator is the primary gauge of consumer spending. Retail sales climbed 0.4% in November, but the estimate for December stands at zero percent.
  5. Trade Balance: Tuesday, 00:30. Australia’s trade surplus has been dropping, as the slowdown in China has taken a bite out of the export sector. A rebound is expected in December, with an estimate of $A2.25 billion.
  6. RBA Decision: Tuesday, 3:30. The RBA is expected to maintain the benchmark rate at 1.50%, where it has been pegged since 2016. Policymakers are concerned about soft inflation and the deepening slowdown in China, which could force the RBA to cut rates. RBA Governor Lowe will hold a press conference after the release of the rate statement.
  7. AIG Construction Index: Wednesday, 21:30. The indicator has been under the 60-threshold for four months, pointing to contraction in the construction industry. In December, the score fell to 42.6, its weakest level since 2013.
  8. NAB Quarterly Business Confidence: Thursday, 00:30. Business confidence fell to 3 in Q4, its weakest reading since Q3 of 2016. The global trade war has weighed on exports and also dampened business sentiment.
  9. RBA Monetary Policy Statement: Friday, 00:30. This quarterly release will be closely watched, as the markets look for further clues regarding future monetary policy.

*All times are GMT

AUD/USD Technical Analysis

AUD/USD posted strong gains in the middle of the week, putting 0.7246 (mentioned last week) under strong pressure.

Technical lines from top to bottom:

We start with resistance at 0.7612, which has been a resistance line since June.

0.7480 capped the pair in mid-July and defends the round 0.75 level.

Next is the round number of 0.74, the high point reached at the wake of December. This is followed by 0.7340, which the pair breached in late November.

0.7315 was a swing high seen in late September. Further down, 0.7240 separated ranges in September and in October. 0.7190 marked a low point in the first week of December.

Lower, 0.7165 was a swing low after a recovery in mid-November. 0.7085 was a low point in September and protected the symbolic round number of 0.70.

Close by, 0.6970 played a role back in January 2017.

Below, 0.6825 supported the pair in late 2016 and early 2017.

I am bullish on AUD/USD

The Australian dollar had an excellent January, with gains of 3.2%. Risk sentiment has been solid, buoying risk currencies like the Aussie. With the U.S and China continuing to hold trade talks, there is optimism that the U.S. will not impose further tariffs in March and that the global trade war will ease.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.