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Aussie Continues to Respect 1.0710 Resistance- GDP Data Eyed

Aussie Continues to Respect 1.0710 Resistance- GDP Data Eyed

2011-05-27 22:11:00
Michael Boutros, Technical Strategist
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The Australian Dollar AU$

AUD/USD NY Spot Close 1.06944

Aussie_Continues_to_Respect_1.0710_Resistance-_GDP_Data_Eyed_body_audusd_risk.png, Aussie Continues to Respect 1.0710 Resistance- GDP Data Eyed

Aussie Continues to Respect 1.0710 Resistance- GDP Data Eyed

Fundamental Forecast for Australian Dollar: Neutral

The Australian dollar closed out the week higher against the greenback, fueled by accelerated dollar losses and a rebound in commodity prices. The aussie hit one month low earlier in the week on the back of broad risk aversion flows that saw traders scaling back high-yielders for the safety of the dollar. However, a late week shift in sentiment was triggered by a weaker than expected US GDP and jobs report. Losses for the dollar deepened with Friday’s dismal April pending home sales print, which showed a contraction of 11.6% m/m and a staggering 26.8% fall on the year on year print. With US growth prospects in question, rate-hike expectations from the Fed have come off, benefitting the aussie which boasts the highest interest rate of the developed economies.

However, the shortened holiday week ahead sees multiple event risks for the Aussie, with the building approvals and the 1Q current account balance on Monday, followed by the much anticipated 1Q GDP report on Tuesday. Growth in the continent-nation is expected to contract by 0.3% q/q, while the year on year print is expected to expand by 1.8%, down from the previous print of 2.7% y/y. If the data misses expectations, markets could take a turn for the worst as concerns about global growth take root. The high-yielding aussie remains extremely vulnerable to swings in risk appetite and will likely see increased volatility on the releases. Accordingly, we remain neutral on the pair until the data print, noting the longer-term outlook remains to the upside.

The AUD/USD pair surged more than 2.5% off its monthly low before encountering resistance at the long-standing 1.0710 level. Looking ahead, the aussie will continue to benefit from interim dollar weakness and strength in gold, with a topside breach eyeing targets at the 161.8% Fibonacci extension taken from the May 17th and 25th troughs at 1.0770. Subsequent ceilings are eyed at 1.08-handle and 1.0870. A brief pullback early in the week would see interim support at 1.0670 backed by 1.0620 and 1.0580. -MB

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