Aussie Remains Bullish on Strong Construction Data

Aussie Remains Bullish on Strong Construction Data
September 4, 2017

 
Range bound movement in iron ore prices and escalated tensions between North Korea and the US had kept the Australian dollar weak against most of its G10 rivals, including the US dollar, in early August. However, in the past two trading sessions, the AUDUSD pair has climbed back to close at 0.7966 on Friday. We anticipate the uptrend to continue due to reasons given below.

The Australian economy continues to perform well, as indicated by a series of positive economic data released last week. According to the Australian Bureau of Statistics, private capital expenditure increased 0.8% q-o-q in the June quarter, against a 0.2% increase anticipated by analysts, but lower than last month’s rise of 0.9%.

However, building approvals declined 1.7% m-o-m in July, compared with a 11.7% growth in the previous month. Still, it was better than a decline of 5.4% forecast by analysts. The completed construction work grew at a pace of 9.3% q-o-q in the June quarter and crushed Consensus estimate of a 0.9% growth. In the previous quarter, the completed construction work grew by a modest 0.9% only. The recent rally in the price of iron ore and coking coal is also supporting a rally in the Aussie.

In the US, the non-farm payroll data reported by the Bureau of Labor Statistics indicated that the economy has added 156,000 jobs in August, versus market’s expectation of 180,000 jobs. Last month, the number of job additions increased by 189,000.

The unemployment rate increased slightly to 4.4% at the end of August, from 4.3% in the previous month. Even the average earnings increased only by 0.1%, against 0.2% anticipated by analysts, and lower than 0.3% rise recorded in the earlier month.

As widely expected, the University of Michigan’s consumer sentiment reading declined to 96.8 in August, from 97.6 in July. According to Thomson Reuters poll, analysts had forecast the UoM consumer sentiment to decline slightly to 97.4.

The construction spending also declined 0.6% m-o-m in July, compared with a downwardly revised 1.4% decline in June 2017. The US Commerce Department stated that a decrease in the number of public sector projects led the decline in the consumer spending to $1.21 trillion – the lowest level since October 2016. The Wall Street analysts had expected construction spending to increase 0.5% in July.

The US automotive sector is also experiencing a cyclical slowdown. According to Autodata Corp, the total vehicles sold in the US declined to 16.1 million in August, down from 16.70 million in the earlier month, and lower than analysts estimate of 16.60 million.

Technically, the AUDUSD pair has been consolidating around 0.7930 levels. The currency cross has also successfully retested the level of 0.7840. The rising momentum indicator confirms the bullishness in the counter. Thus, we can expect the pair to break above the next immediate resistance level of 0.8040 and reach 0.8125.

AUDUSD - Technical Analysis - 4th September 2017

By going long in the AUDUSD pair, we hope to benefit from the impending rally. The position will be likely opened near 0.7940, with a stop loss order below 0.7840. We are planning to exit near 0.8125.

A call option is the most ideal contract to trade at this point in time. Thus, we may invest our surplus amount in a call option valid until September 11th. A strike price of about 0.7940 would be ideal for the trade.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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