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AUD/USD: Aussie consolidates as business confidence stabilizes

H.S. Borji
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The Australian dollar rebounded against its US counterpart Thursday, as the AUDUSD erased intraday losses amid mildly optimistic business confidence data.

The AUDUSD declined in Thursday’s Asian session, despite relatively upbeat data from Australia and China. The pair sunk to an intraday low of 0.8751. It would subsequently consolidate at 0.8776, advancing 0.12 percent.

The AUDUSD made an unsuccessful attempt at the 88.00 level, failing to sustain a brief intraday high of 0.8805. A breach above the 88.00 level would target 0.8816 and 0.8852 as the next resistance levels. This would eventually lead to a re-test of the 0.8900 psychological level, which is also the high from October 9.

On the downside, the classic pivot point chart shows initial support descending from 0.8744.

In economic data, Australian business confidence held steady in the third quarter, as overall conditions and future expectations edged up slightly, the National Australia Bank reported today.

NAB’s business confidence indicator, which gauges the performance of the Australian economy over the short-term, was unchanged at 6 in the September quarter.

NAB commented that “Business confidence was unchanged in Q3, remaining close to the long run average levels.” However, the monthly survey “shows signs that the momentum has turned, with confidence easing steadily over the third quarter,” largely due to domestic and international uncertainties.

Australia’s export sector still considered the local currency to be at “unfavourable levels.” Sentiment could change with the next iteration of the survey, as the local currency’s recent large deterioration occurred after the Q3 survey period. Concerns about the relative strength of the Australian dollar suggests businesses, especially those in natural resources, were uncertain about how to deal with currency-related risks.

The Aussie has been described as “stubbornly high” by the Reserve Bank of Australia, which forecasts further declines for the local currency. A weaker Aussie could help rev up the country’s tourism, natural resources and education sectors.

Separately, Chinese manufacturing activity rose faster than forecast in October, easing concerns about growth in the world’s second-largest economy.

HSBC’s closely watched gauge of Chinese manufacturing output rose 0.2 percentage points to 50.4 in October, slightly higher than forecasts calling for 50.3. A reading above 50.0 is a sign of expansion in manufacturing activity, whereas a reading below that level denotes contraction.

However, the survey noted “insufficient effective demand” in the Chinese economy, which suggests the country was showing signs of slowing at the start of the fourth quarter. A slowdown in growth “warrants further policy easing,” according to HSBC chief economist Hongbin Qu.

Earlier this week the Chinese government said third quarter growth fell to the lowest level since 2009, raising expectations Beijing would adopt more accommodative measures to stimulate the economy.

Chinese GDP grew 7.3 percent annually in the July to September period, following a gain of 7.5 percent in the second quarter. Economists forecast a gain of 7.2 percent.

Separately, the government said industrial production rebounded sharply in the 12 months through September, rising 8 percent. That followed an increase of 6.9 percent that was the lowest in six years.

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