The US dollar may have ended the past week as the strongest of the majors, but the Australian dollar came in at a close second. From a technical perspective, AUD/USD trendline support at 0.7920 will serve as a line in the sand for price going forward, as a break below that point would signal a bearish turn, while a bounce will keep the pair’s uptrend well in place.
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Australian Dollar Outlook Hinges Upon Key Trendline Support[/B]
[B]Fundamental Outlook for Australian Dollar: Neutral[/B]
- RBA left rates at 3%, but also suggested potential for future rate cuts
- Australian Q1 GDP surprisingly rose 0.4% thanks to increased consumption, exports
- Australian AiG Construction PMI rose to 46.9 in May from 36.5 in April, signaling contraction for the 15th straight month
The US dollar may have ended the past week as the strongest of the majors, but the Australian dollar came in at a close second. From a technical perspective, AUD/USD trendline support at 0.7920 will serve as a line in the sand for price going forward, as a break below that point would signal a bearish turn, while a bounce will keep the pair’s uptrend well in place.
The Australian dollar was actually quite strong for much of the week, as economic data from Australia has generally shown that it is one of the more resilient nations. In fact, the Australian Bureau of Statistics surprisingly said that GDP grew by 0.4 percent in Q1 from the previous quarter, following a 0.6 percent in Q4 2008. Meanwhile, the annual rate eased for the sixth straight quarter to a 0.4 percent pace as well, down from 0.8 percent, though this certainly beat expectations of an all-out contraction. A breakdown of the report showed that consumer spending rose 0.6 percent, government spending increased 0.3 percent, and exports jumped 2.7 percent. Weaker points could be found in business investment, which dropped 6.1 percent, while imports slumped 7 percent.
These GDP results underpinned the Reserve Bank of Australia’s (RBA) policy stance, as they left rates unchanged at 3 percent during their most recent meeting. The RBA said that “considerable economic policy stimulus in train in most countries is helping to contain the downturn,” and saw the clearest evidence of a turnaround in China. At the same time, RBA Governor Glenn Stevens said that “the prospect of inflation declining over the medium term suggests that scope remains for some further easing of monetary policy,” and that the Board will “continue to monitor how economic and financial conditions unfold.” Based on the resilience reflected in the Q1 GDP figures, it doesn’t look like further rate cuts are in the cards, but if upcoming data suggests that the Australian economy is in the midst of a continued downturn, interest rate expectations could change.
The Australian labor markets started to deteriorate during the second half of 2008, and this is likely to continue through 2009. While we did see a surprise improvement in April, the May results are projected to show that the unemployment rate rose back up to 5.7 percent from 5.4 percent while the net employment change is anticipated to fall by 30,000. The latter report tends to have a greater impact on the Aussie since the figure rarely meets expectations and can lead to volatile short-term price action for the Australian dollar immediately following the news at 21:30 EDT.