Australia’s trade deficit shrank by more than $1 billion AUD in Feb. Latest available data show current trade balance standing at -178M AUD versus Jan’s -1,215M AUD gap and much better than analysts estimate of -1,000M. Exports has risen by 3.3% while import has dipped by 0.9%. However, before we get too excited about the huge improvement, it is worth noting that increase in commodity prices contributed significantly in narrowing the gap rather than a true return of economy strength.
AUD/USD traded higher on the news, but quickly pulled back to 1.045 in the next hour. 1.045 and confluence with rising Kumo are both providing support against any declines, keeping current rally from 1st April intact. A break of 1.45 and preferably 1.044 may open up 1.04 as possible downward objective. Upside is still kept by 1.048 and the confluence with 27th March floor. With Stoch readings entering into Overbought region, it may be difficult for price to break the 1.048 barrier, though bulls may still take heart that readings are still a fair distance away from the recent peaks seen in early week.
Daily Chart is more bullish with stochastic readings forming an interim trough. Price remains above current Kumo which will help to support against short-term selloffs. Current rally from 1st Mar lows is still in play, though a return to stronger bullish momentum may only occur after 1.05 has been breached. Failure to break 1.05 may not necessary spell doom for bulls, but will most likely result in price remaining depressed between 1.04 – 1.05.
Fundamentally, a return to growth from China as evident via the PMI data will help Australia to improve its exports and trade balance. This will have a lifting effect on both economy and currency. From yesterday’s RBA statement, the hawkish tone of RBA suggest that rate cuts may not be in the cards in the near future, and that will allow AUD/USD to rally higher without any RBA’s interference.
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