Forex Market: AUD/USD trading forecast for November 2nd

Friday’s trade saw AUD/USD within the range of 0.7064-0.7150. The pair closed at 0.7139, soaring 0.96% on a daily basis, or at the most considerable rate since October 9th, when it appreciated 1.05%. The daily high has been the highest level since October 28th, when the cross registered a high of 0.7207. In weekly terms, AUD/USD plunged 1.05%, while marking a third consecutive week of decline. The weekly drop rate has been the sharpest one since the week ended on September 27th, when the pair plummeted 2.30%.

On Monday (November 2nd) AUD/USD trading may be influenced by a number of macroeconomic reports as listed below.

Fundamentals

Australia

Performance of Manufacturing Index

At 22:30 GMT on Sunday the Australian Industry Group (AIG) is expected to announce the results from its survey on short-term and intermediate-term conditions in the sector of manufacturing in Australia during October. 200 manufacturers provide their assessment of overall business situation in the sector in terms of employment, new orders, output, prices and inventories. The seasonally adjusted Performance of Manufacturing Index (PMI) for Australia came in at a reading of 52.1 in September. It has been the highest level since May 2015, when a reading of 52.3 was reported. Values above the key level of 50.0 are indicative of optimism (expansion in activity). An improvement in the value of this indicator would have a moderate bullish effect on the Australian dollar.

MI Inflation forecast

At 23:30 GMT the same day the University of Melbourne will release its estimate of inflation in Australian economy as of October. Annualized inflation estimate for September pointed to a rate of 1.9%, or the highest since November 2014, when an annual rate of 2.2% was projected. If inflation rate rises, this adds to the case of an interest rate hike by the Reserve Bank of Australia (RBA), which usually has a bullish effect on the national currency. It is so, because assets, offering higher yields tend to attract more international investors, who will look to buy the domestic currency and respectively, its demand will be spurred.

United States

Manufacturing PMI by Markit – final estimate

The final estimate of the Manufacturing Purchasing Managers Index for October probably confirmed the flash estimate of 54.0, which was reported on October 23rd. If expectations were met, this would be the highest PMI reading since May 2015, when the final gauge was reported at 54.0. In September the final seasonally adjusted PMI stood at 53.1, inching up from a preliminary value of 53.0.

According to preliminary data by Markit, ”October data indicated a robust and accelerated expansion of production levels across the manufacturing sector. The latest rise in output was the fastest since March, which brought the pace of expansion back in line with the post-crisis average. Survey respondents mainly cited improving demand from domestic markets and competitive pricing strategies.”

”Improved sales patterns and rising production requirements contributed to a rebound in job creation from the 27-month low recorded during September. Manufacturers signalled the sharpest increase in payroll numbers since July, but the pace of staff hiring was still weaker than the post-crisis average.”

”Manufacturers remained cautious in terms of their inventory holdings and input buying during October. Reflecting this, stocks of finished goods decreased for the third successive month. The latest survey marked two years of rising purchasing activity at manufacturing companies, but their pre-production inventories increased only modestly”, Markit stated.

Values above the key level of 50.0 indicate optimism (expanding activity). In case the final PMI for October confirmed or even exceeded the preliminary reading, this would cause a moderate bullish impact on the US dollar. The final reading is due out at 14:45 GMT.

ISM Manufacturing PMI

Activity in United States’ manufacturing sector probably slowed down for a fourth consecutive month in October, with the corresponding manufacturing PMI coming in at a reading of 50.0, according to expectations, down from 50.2 in September. If so, this would be the lowest PMI reading since May 2013, when the gauge was reported in the area of contraction (49.0).

The New Orders Index fell to 50.1 in September from 51.7 in August. The gauge of Production slipped to 51.8 from 53.6 in the previous month. The Employment Index went down to 50.5 in September from 51.2 in August, while the Prices Index lowered to a level of 38.0 from 39.0 during the period, signaling lower prices of raw materials for the 11th straight month. The New Export Orders Index remained steady at a reading of 46.5 in September. During the month, 7 manufacturing industries reported growth, while 11 reported contraction in activity, according to data by the Institute for Supply Management (ISM).

In case the PMI slowed down more than anticipated, this would have a strong bearish effect on the greenback. The Institute for Supply Management (ISM) is to release the official reading at 15:00 GMT.

Correlation with other Majors

Taking into account the week ended on November 1st and the daily closing levels of the currency pairs involved, we come to the following conclusions in regard to the strength of relationship:

AUD/USD to NZD/USD (0.8415, or very strong)
AUD/USD to EUR/USD (0.7854, or strong)
AUD/USD to GBP/USD (0.1875, or weak)
AUD/USD to USD/CAD (0.1305, or weak)
AUD/USD to USD/JPY (-0.2406, or weak)
AUD/USD to USD/CHF (-0.7894, or strong)

1. During the examined period AUD/USD moved strongly in one and the same direction with EUR/USD, while moving strongly in the opposite direction compared to USD/CHF.

2. AUD/USD moved almost equally in one and the same direction compared to NZD/USD during the week.

3. The correlation between AUD/USD and GBP/USD, AUD/USD and USD/CAD, AUD/USD and USD/JPY was insignificant during the period in question.

Daily and Weekly Pivot Levels

By employing the traditional calculation method, the Monday pivot levels for AUD/USD are presented as follows:

Central Pivot Point – 0.7118
R1 – 0.7171
R2 – 0.7204
R3 – 0.7257

S1 – 0.7085
S2 – 0.7032
S3 – 0.6999

By using the traditional method of calculation again, the weekly pivot levels for AUD/USD are presented as follows:

Central Pivot Point – 0.7158
R1 – 0.7253
R2 – 0.7367
R3 – 0.7462

S1 – 0.7044
S2 – 0.6949
S3 – 0.6835