Over the previous fortnight, the AUDUSD has been on quite a rollercoaster. The journey started with the dovish RBA minutes release two weeks ago, indicating that the RBA are becoming disillusioned with an overvalued currency. This caused the AUDUSD to fall to a 6-week low.
These losses were quickly reversed when the US Central Bank downgraded their economic forecasts for 2014. The US central bank acknowledged that the adverse winter weather period had a far more detrimental impact on their economy, than they first envisaged.
Overall, the US economy contracted by an annualized 2.9% during the first quarter of 2014. This is a far greater contraction than originally anticipated and has weighed down confidence in the world’s largest economy. All in all, the news of worse than expected US economic contraction enticed the pair to challenge the psychological resistance on the Daily timeframe (0.9425), just below a yearly high at 0.9460.
Although the price has pulled back slightly over the weekend, it is possible the psychological resistance level could be rechallenged (or surpassed) within the next 24 hours. On Tuesday morning, it is expected that China’s manufacturing PMI’s will be confirmed at 51.0, a six month high. China is Australia’s main trading partner and this news (if confirmed) would likely provide the AUDUSD with a boost.
Also in the early hours of Tuesday morning, we are expecting the latest RBA interest rate decision. The Australian central bank has already declared that they are going to continue with their neutral bias, and maintain rates at 2.5%. This would likely leave the pair unchanged, although investors will be keeping a close eye for any statements following the RBA rate decision that the AUDUSD is “overvaluedâ€, which might trigger bearish movement.
Thursday’s US non-farm payroll (the amount of jobs the US created last month) will also have a direct impact on the AUDUSD direction. Although the US employment sector has made great progress over the past couple of months, confidence is low in the US economy following last week’s GDP confirmation. Janet Yellen also refused to offer a timeframe regarding when the Federal Reserve would raise interest rates during her live press conference following the FOMC meeting. I am weary that unless this month’s non-farm payroll exceeds 225,000, the response may be muted. This could potentially uplift the AUDUSD.
Overall, it is not out of the realms of possibility that the AUDUSD could record a new yearly high over the upcoming days. The pair is currently benefiting from the United States worst economic contraction since 2009.
If it is confirmed tonight that China’s manufacturing PMI’s have rebounded to a six-month high, the pair should move upwards. Both the Stochastic Oscillator and RSI have some movement to go, before reaching the overbought boundaries. Resistance levels are situated at 0.9425 and 0.9460. Any movement beyond the latter would signify a new yearly high.
However, if China’s manufacturing PMI’s fail to meet expectations, or a dovish RBA statement follows the RBA interest rate decision, the 0.9363 resistance level will likely be used.
In regards to the US non-farm payroll release on Thursday afternoon, we might just have to wait and see. Yellen’s refusal to offer a timetable for a Federal Reserve interest rate hike could reflect in more risk appetite in the currency markets, unless the non-farm payroll is looked at positively.
Either way, I am expecting the rollercoaster journey to continue this week and will be keeping a very close eye on this pair’s movement as the week develops.
Written by Jameel Ahmad, Chief Market Analyst at FXTM.
