Tuesday’s ETF Chart To Watch: CurrencyShares Australian Dollar Trust (FXA)

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Major equity indexes kicked off the week on a positive note as encouraging economic data on the homefront bolstered investors’ confidence. Buying pressures emerged at the open bell as ISM data topped analyst expectations; this month’s figure came in at 51.5 versus the previous reading of 49.7, marking a healthy increase in domestic manufacturing activity. Worse-than-expected construction spending data released later in the day went largely unnoticed; this figure contracted by 0.6% in August after contracting 0.4% the previous month [see ETF Insider: Technicals Favor Stocks].

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With no major economic data releases at home today, investors will focus their attention on the latest Reserve Bank of Australia rate decision. As such, our ETF to watch for the day is the Rydex CurrencyShares Australian Dollar Trust (FXA, A), which could attract volatile trading following the overnight reaction to the interest rate decision. Analysts are largely expecting for the benchmark rate to remain unchanged at 3.5%, although the economic commentary issued after the decision itself may offer more valuable insights to investors [see also Which Commodity ETFs Could Outpace QE3?].

Chart Analysis

FXA has recovered above its 200-day moving average (yellow line) since shares bottomed out above the $96 level in early June of this year. Since then, this currency ETF has moved higher along a rising support line, although profit-taking pressures have kept a lid on its upside potential; notice how FXA recently tried and failed to summit the $106 level (red line) in early August and later again in mid-September [see 3 ETF Trading Tips You Are Missing].

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FXA

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FXA has retraced back to its 200-day moving average, and if it manages to bounce off this support level, its next leg-higher could bring it above $106 a share [see also ETF Technical Trading FAQ].

Outlook

If the latest interest rate decision offers pessimistic commentary regarding the nation’s economic outlook, the Aussie dollar could face selling pressures; in terms of downside, the next support level for FXA comes in at $102 a share. On the other hand, an upbeat reaction to the latest rate decision may lead to a rally for the Aussie dollar in the currency market; in terms of upside, this ETF has major resistance at $106 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing.

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