Forex Market: AUD/USD trading outlook for February 29th

Friday’s trade saw AUD/USD within the range of 0.7114-0.7258. The pair closed at 0.7130, plummeting 1.45% on a daily basis. It has been the 10th drop in the past 20 trading days and also the sharpest one since February 5th, when the pair lost 1.81%. The daily low has been the lowest level since February 19th, when a low of 0.7065 was registered. In weekly terms, AUD/USD edged down 0.28% during the current week. It has been the fourth drop in the past 8 weeks. AUD/USD has added 0.59% to its value so far during the current month, following a 2.68% slump in January.

On Monday (February 29th) AUD/USD trading may be influenced by the following macroeconomic reports as listed below.

Fundamentals

Australia

MI Inflation Estimate

At 0:00 GMT on Monday (February 29th) the University of Melbourne will release its estimate of inflation in Australian economy as of February. Annualized inflation estimate for January pointed to a rate of 2.3%, or the highest since October 2014, when a rate of 2.3% was projected as well. If inflation rate rises, this boosts the probability of an interest rate hike by the Reserve Bank of Australia (RBA), which would usually have a bullish effect on the national currency. It is so, because assets, offering higher yields tend to attract more international investors, who will look to buy the domestic currency and respectively, its demand will be increased.

Private Sector Lending

Private sector lending in Australia probably expanded for a 55th consecutive month in January, going up at a monthly rate of 0.5%, according to the median forecast by experts. In December compared to November lending surged another 0.5%. This indicator reflects the ability of the nations private sector to afford huge expenditures, which could be a driving force behind economic growth. Thus, the indicator provides clues over general business conditions in Australia. In case private sector lending expanded at a more considerable pace than projected, given the current global macroeconomic conditions, this would have a limited-to-moderate bullish effect on the Australian dollar. The Reserve Bank of Australia is to release the official data at 0:30 GMT.

AIG Performance of Manufacturing Index

At 22:30 GMT the Australian Industry Group (AIG) is expected to announce the results from its survey on short-term and intermediate-term conditions in the sector of manufacturing in Australia during February. 200 manufacturers provide their assessment of overall business situation in the sector in terms of employment, new orders, output, prices and inventories. The seasonally adjusted Performance of Manufacturing Index (PMI) came in at a reading of 51.5 in January, slowing down from 51.9 in December. Januarys reading has been the lowest since October 2015, when the PMI stood at 50.2. The sub-index of new orders was registered at 52.8, that of exports – at 53.9 and that of production – at 52.9. The sub-gauges of employment, supplier deliveries and sales returned in the zone of contraction. Values above the key level of 50.0 are indicative of optimism (expansion in general activity). An improvement in the value of this indicator would have a moderate bullish effect on the Australian dollar.

United States

Chicago Manufacturing Survey

The Chicago Purchasing Managers Index (PMI) probably slowed down to a reading of 54.0 in February, according to market expectations, from 55.6 during the prior month. The latter has been the highest reading since October 2015, when the PMI came in at 56.2. The index reflects business conditions in the regions manufacturing sector and is interrelated with the Manufacturing Index, published by the Institute for Supply Management (ISM). A reading above the key level of 50.0 is indicative of optimism (expansion in manufacturing activity). In case the PMI slowed down more than forecast, this would have a moderate bearish effect on the US dollar. The ISM-Chicago Inc. will release the official reading of this key barometer at 14:45 GMT.

Pending Home Sales

The index of pending home sales in the United States probably rose 0.5% in January, according to the median estimate by experts. If so, this would be the sharpest monthly increase since July 2015, when sales went up 0.5% as well. In December pending home sales rose 0.1%.

In annual terms, the index of pending home sales advanced 4.2% in December, which has been a 16th consecutive month of increase and also the steepest rate since August 2015, when sales climbed 6.1%.

In case pending home sales increased at a faster pace than anticipated, this would have a moderate bullish effect on the US dollar. The National Association of Realtor’s (NAR) will report on the official index performance at 15:00 GMT.

Correlation with other Majors

Taking into account the week ended on February 26th and the daily closing levels of the currency pairs involved, we come to the following conclusions in regard to the strength of relationship:

AUD/USD to EUR/USD (0.9581, or very strong)
AUD/USD to NZD/USD (0.8399, or very strong)
AUD/USD to GBP/USD (0.6799, or strong)
AUD/USD to USD/CAD (0.3567, or moderate)
AUD/USD to USD/CHF (-0.2157, or weak)
AUD/USD to USD/JPY (-0.5822, or strong)

1. During the examined period AUD/USD moved strongly in one and the same direction with GBP/USD, while moving strongly in the opposite direction compared to USD/JPY.

2. AUD/USD moved almost equally in one and the same direction with NZD/USD and EUR/USD during the week. This relationship has been the most pronounced between AUD/USD and EUR/USD.

3. The correlation between AUD/USD and USD/CHF was insignificant during the period in question.

Daily and Weekly Pivot Levels

By employing the traditional calculation method, the Monday pivot levels for AUD/USD are presented as follows:

Central Pivot Point – 0.7167
R1 – 0.7221
R2 – 0.7311
R3 – 0.7365

S1 – 0.7077
S2 – 0.7023
S3 – 0.6933

By using the traditional method of calculation again, the weekly pivot levels for AUD/USD are presented as follows:

Central Pivot Point – 0.7168
R1 – 0.7223
R2 – 0.7315
R3 – 0.7370

S1 – 0.7076
S2 – 0.7021
S3 – 0.6929