AUD/USD – Worsening Trade Balance Pushing Aussie Lower

Australia’s Jan trade deficit grew to $1.06 billion in January, doubling analysts expectations of a $500 million gap. Previous month’s reported deficit was also revised higher to $688 million from $430 million. The widening deficit is contributed by exports falling by 1 percent and imports rising by an equal %. Australia is no stranger to wide trade gap, with October’s deficit coming in at an astonishing $2.64 billion, though current gap is certainly narrower than the recent high, it must be a worrying sign for both Australian Government and private firms as trade balance last saw true positive figures back in Dec 2011, and that is certainly not a good sign for a country whose economy is net exporting.

One can point to the declining mining sector as a factor for falling exports. A strong AUD on the other hand encourage higher local consumption, which increases rate of growth for imports. By pure market forces alone, we should be seeing AUD/USD weakening as we are seeing net-outflow of funds from Australia. However, RBA may find little comfort in this as AUD/USD still remain highly elevated despite seeing trade deficits for the entirety of 2012, which may spur Stevens and co. to press the “ease if necessary” button that almost every single Central Banker around the world have been taunting for the past 2 months.

Hourly Chart

AUD/USD traded lower following the news, entrenching price’s position below the 1.024 interim support. Price was well on its way of a bearish breakout during US trading session yesterday after a failed attempt to move back to 1.03. We’ve broken numerous shorter term support trendlines and also cleared 1.025 support (see daily chart below). However price could still find short-term support between 1.02 to 1.024 with trading activities consolidating between the 40 pip range back on 27th Feb and 1st Mar. Stochastic is in-line with a support-zone scenario, with readings currently similar to the 3 troughs that occurred within the past 1.5 weeks which were fairly accurate in showing rebounds in prices. Though the troughs on 27th Feb and 4th Mar produced strong rallies, it is important to note the trough on 1st Mar only gave bulls less than 30 pips of rally from the low. Hence bulls should be aware of this caveat emptor when making their decisions.

Daily Chart

Daily chart remains bearish, with the channel top holding nicely below the 38.2% Fib. Price has also broken through the 1.025 support to open up the recent lows and Channel bottom as viable bearish objectives. However, Stochastic readings are still looking higher, which suggest that a short-term pullback towards 1.025 is still possible. An ideal bearish scenario would be the failure of bulls to break 1.025 to underline bearish intent, which should ideally be reinforced by Stoch readings topping or at least in the oversold region.

RBA’s recent statement marks the 2nd month that Stevens have used the phrase “if necessary”. It is apparent that traders are no longer fazed by such dovish speak without action follow-through. Yesterday’s better than expected GDP has also eroded anticipation of RBA rate cuts, yet AUD/USD bearish bias remains showing the resilience of bears. Nonetheless bearish outlook can change in a heartbeat if price is able to sustain 1.03 and above, which will open up 1.05 and 1.06 bullish objectives.

More Links:
AUD/USD – Pressure Mounts on the Key 1.02 Level
USD/AUD – Edges Higher as Aussie GDP Remains Steady
EUR / USD – Central Bank Week Continues

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.