Australian Trade Numbers Push the AUD

11/06/2008 10:31 am EST

Focus: FOREX

John Jagerson

Co-Founder and Contributor, LearningMarkets.com

Trade numbers are due from Australia this week. The report is an important one for the Australian economy and currency. The economy is driven by trade, and exports can drive a currency’s value as goods have to be purchased in AUD from Australian exporters.

I have been talking to a lot of retail traders who believe that exports have been in decline this year. Considering the depreciation in the AUD in the third and fourth quarters of 2008, I am not surprised that they feel this way. However, exports have actually been growing at a very brisk pace this year through August.

Trade numbers are released a little more than 30 days after the close of the month being reported. That means that trade numbers being reported in this week in November actually cover the September data. This data is even more important right now as the AUD is experiencing a recovery versus the USD and EUR over the last few trading sessions. Trade could be very supportive of that trend (if exports are good), or it could be disastrous (if exports have started to dip).

As a currency analyst, I am anticipating a decline in exports. Driving this decline is the currency and credit crisis which is impacting the global economy right now. Lower demand from Asia definitely depresses Australian exports, and indicates a decline in demand for the AUD.

The current credit and currency crisis reminds me of a similar one in Asia in 1997. One of the notable differences with that crisis and this one is that Western economies like the US and euro zone still had very high demand for imports in 1997. That allowed Asian economies and Australia to more or less export their way out of trouble. This time around, the US and euro zone are leading the way into the recession, and demand is inevitably going to dip.

Daily Chart of Australian Dollar/US Dollar (AUD/USD)
Chart

If Asia can't export to the west, then they are not going to import from Australia. Dipping trade numbers could be a good indication that the economic slide is going to continue, and it should drag the AUD with it.

From a technical perspective, the AUD/USD is against a resistance level of the 38.2% retracement level. A consolidation here and reversal to the downside would not be unexpected. You can see this setup in the chart above.

By John Jagerson, of PFXGlobal.com and LearningMarkets.com.

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