US Dollar Up on Strong ISM Manufacturing PMI Data

US Dollar Up on Strong ISM Manufacturing PMI Data

In our report dated September 20th, we had predicted a decline of the AUDUSD currency pair, from the level of 0.7979. We had also mentioned our interest to go short in the currency pair and also invest in a put option to gain from the anticipated decline. The AUDUSD pair fell to 0.7800 levels a week later, thereby resulting in a profit from both the trades. Now, we expect the AUDUSD pair to decline further due to reasons given below.

Defying expectations of a decline in the manufacturing activity due to hurricane Harvey and Irma, September’s manufacturing PMI (Purchase Managers Index) rose to 60.8 – the highest level in a decade – from 58.8 in the earlier month. Analysts had expected the ISM manufacturing PMI reading to decline slightly to a level of 57.9.

On September 20, the US Fed surprised the market by reconfirming its stance on inflation and interest rate projections. The US Fed chair Janet Yellen also warned that rate setters should not wait for inflation to reach the target level of 2% before beginning to normalise the interest rates. All these factors have increased the odds of a rate hike in December and turned the Greenback bullish. In the case of the Australian dollar, the sentiment has turned bearish due to a dovish stance of the RBA.

Earlier last week, the RBA governor Philip Lowe hinted that the central bank will not consider tightening the monetary policy at this time. While addressing the American Chamber of Commerce in Perth, Lowe told that Australia will not be affected immediately by any hike in global interest rates and the impact could be seen only after a few months.

Furthermore, iron ore, which is a principal export commodity of Australia, is trading near the three month low of $61.50 per ton. Economists have painted a gloomy picture for iron ore as inventory in China, which imports nearly 70% of the Australian ore, has risen to a record level of 134 million tons. Thus, strong industrial data and Fed’s hawkish stance favour the strengthening of the Greenback, while the dovish rhetoric of RBA and a sharp decline in the iron ore price favour a decline of the Aussie.

The AUDUSD pair is trading below the 50-period moving average. Furthermore, the MACD indicator is moving below the zero level. Thus, we can expect the bearishness in the currency pair to continue.

AUDUSD - Technical Analysis - 4th October 2017

To trade the downtrend, we wish to go short in the AUDUSD pair near 0.7860, with a stop loss order above 0.7960. The trade will be closed when the currency pair falls to 0.7700 levels.

From one of our dependable binary brokers, we may purchase a put option when the pair trades near 0.7860. A date around October 12th will be selected for the expiry of the contract, in a case we go ahead with the trade.

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