Aussie unlocks new highs ahead of Q4 capex – Forex News Preview


Melina Deltas, XM Investment Research Desk

The Australian dollar has been moving sharply higher against the US dollar over the last month as investors are waiting for the capital expenditure data for the fourth quarter on Thursday at 02:00 GMT ahead of the GDP figure on March 3.  In the meantime, the aussie is forming a positive structure on the back of the positive vaccine news, which have opened a pathway to a safe Australia.

Private capital expenditure slumped by 3% q/q in the third quarter, the seventh consecutive quarter of decline, following a revised 7.1% fall in the previous release.  Through the year to the third quarter, private capital expenditure plunged 13.8%. More of the same is likely in Q4, with capex a forecast of 0.0% q/q. Equipment spending may fall by -1.5%, though businesses are becoming more upbeat and uncertainty has decreased, while supply lines have improved. However, a negative reading in capital expenditure could not necessarily cause a decline in Q3 gross domestic product next week.

The nation’s economy advanced 3.3% q/q in the three months to September, following a partial recovery from a record 7% contraction before and easily beating market expectations of a 2.6% growth. It was the steepest period of expansion since the March quarter of 1976. In case of a positive number in capex, the GDP number may advance, showing that some recovery is on the cards during these crucial periods.

RBA cash rate decision is coming next week

During February’s meeting, the RBA left its cash rate unchanged at a record low of 0.1%, as widely expected. Policymakers started their discussion by mentioning that the outlook for the global economy had improved after the development in the rollout of coronavirus vaccines. GDP and employment were expected to reach their pre-pandemic levels over the course of 2021, around 6–12 months earlier than previously expected. However, they do not expect to reach their targets for unemployment and inflation until 2024 at the earliest. Members concluded that they will not raise the cash rate until inflation is sustainably in the 2-3% target band.

Aussie unlocks 3-year high above 0.79 

From the technical point of view, aussie/dollar is surging towards a new three-year high of 0.7933 after finding strong support at the long-term ascending trend line. Upbeat numbers are likely to propel the price higher above the three-year high towards the peak registered in January 2018 at 0.8130.

However, the price could be at risk of a bearish retracement if the capital expenditure number disappoints. Nevertheless, vaccine rollouts seem to be more important for significant movements in the market. Price action is likely to rechallenge the 0.7820 support, taken from the inside swing high from January 6. A move below this level could challenge 20- and 40-day simple moving averages (SMAs) at 0.7720, which coincides with the uptrend line. A significant step below this line could take the market towards 0.7570, shifting the outlook to neutral.