AUDUSD Retraces After Opening The Week Strong

12 Oct 2021

AUDUSD started the week on a strong footing and continues to advance for the 3^rd consecutive week. The pair is currently trading at a multi-week high around 0.7337. The strength in the Aussie could be attributed to the optimism around the economic reopening of some parts of Australia.

Freedom day in Sydney

After nearly four months of a strict lockdown, the New South Wales (NSW) state of Australia welcomed its “Freedom day” on Monday as the states cafes, gyms and restaurants reopened to fully vaccinated customers. With 74% of its people, above 16, fully vaccinated, the state of NSW, which includes Sydney, is set to be the first state to cross the 80% threshold. The state of Victoria which contains Melbourne is not far behind. The high vaccination rate has allowed the Australian government to gradually reopen the country, boosting investors’ confidence in the Australian dollar.

Upbeat Australia Trade Balance

Earlier last week, August Trade Balance released by the Australian Bureau of Statistics outperformed market expectations for the third straight month. Trade balance is the difference in the value of imports and exports of a country. The positive trade balance data indicated a strong demand in exchange for Australian exports, which is bullish for the AUD.

Disappointing NFP

The strong opening of the AUDUSD may also be contributed by the disappointing US job data released on Friday. The monthly jobs report published by the US Bureau of Labor Statistics revealed that Nonfarm Payrolls (NFP) rose by 194,000 in September, which was a huge miss from the market consensus of 500,000. This was the second consecutive month where the NFP underperformed against the market expectations. The US Dollar Index (DXY), which is a gauge of the US dollar’s strength against the major rival currencies, dipped as low as 93.94 before finding support above 94. This week, traders will pay close attention to Consumer Price Index (CPI) data in the US for fresh impulses. Additionally, the FOMC Minutes due to be released on Thursday will be closely examined for clues on the policy outlook. A hawkish tone may boost the greenback against the Aussie dollar.

Technical Analysis

At the time of analysis, the AUDUSD has retraced after testing the upper resistance band of a falling wedge stretching back to March. Technical indicators lead us to believe that it is short term bullish for the pair. The RSI is above the neutrality zone at 50 and the MACD shows that the momentum has switched from bearish to bullish with the histogram crossing above the zero line into the positive region.

If the pair manages to break above the dynamic resistance line, our next target would be set around 0.7451 which is the 61.8% Fibonacci level. In the alternate scenario where the price is rejected off the dynamic resistance, the upward sloping dynamic support line will serve as support for AUDUSD.

Key events to watch in the coming week:

Wednesday, October 13

USD – Consumer Price Index Core s.a. (Sep), Consumer Price Index (MoM) (Sep), Consumer Price Index ex Food & Energy (MoM) (Sep), Consumer Price Index (YoY)(Sep), Consumer Price Index ex Food & Energy (YoY)(Sep)

Thursday, October 14

USD – FOMC Minutes, Monthly Budget Statement (Sep), Fed’s Brainard speech, Fed’s Bowman speech, Producer Price Index ex Food & Energy (YoY)(Sep), Initial Jobless Claims (Oct 8), Initial Jobless Claims 4-week average (Oct 8)

AUD – RBA’s Debelle speech, Consumer Inflation Expectations (Oct), Employment Change s.a. (Sep), Unemployment Change s.a. (Sep)

Friday, October 15

USD – Fed’s Williams speech, IMF Meeting, Retail Sales Control Group (Sep), Retail Sales (MoM)(Sep), Michigan Consumer Sentiment Index (Oct)

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