Australian Business Confidence Index from NAB and AUD/USD
Another important indicator that uses fundamental market analysis is the business confidence index.
A trusting relationship between the investor and the state is a key condition for
the development of successful business in any country in the world.
Agree, if you do not trust the state, do not believe that you will receive your payments without securities courts, or your business can simply be squeezed out of you, you will never invest in such a state and its economy.
The Australian Business Confidence Index is a macroeconomic indicator that is released in the first half of the month, and its main purpose is to measure the level of business confidence in the government and its structures.
The index is calculated by the National Australia Bank through a survey of 350 different companies from small to large. Thus, a general picture of investor confidence in the state is formed.
In trading, news is used extremely simply. To do this, you need to familiarize yourself with the analysts’ forecast in the economic calendar , and if the indicator is higher than expected, then this is an excellent signal to buy the Australian dollar, since it will rise in price. If the result is lower than expected, this is a sign of deteriorating business confidence, so the Australian should be sold.
You need to know that the result can be higher than 0 if investment conditions improve, as well as lower than 0 if these conditions worsen significantly. However, if in theory everything looks quite simple, then how does the market really react to its release, what degree of influence does it actually have and how many points does the price move on average?
In order to answer all these questions, I propose to familiarize yourself with four examples of market behavior in history for the AUD/USD currency pair and draw final conclusions about the importance of the indicator.
On 06/09/2015, the business confidence index added 4 points, because if we consider the information for the last month, which was 3, the result was 7, which tells us about an increase in business confidence and the investment climate within Australia. Based on the positive increase, we should expect growth in the AUD/USD currency pair. How the price chart behaved after the result appeared can be seen in the picture below:
The example shows that market participants reacted violently to the publication of positive information, so we, together with you, can observe a rapid drop in price by 27 points. The news can be classified as explosive, since its effect lasted no more than 20 minutes, after which the rollback and final reversal began at the same rapid pace.
On 07/14/2015, all traders saw the news about another increase in business confidence by 2 points compared to the previous month, since the actual result was 10 versus 8 last month.
Thus, we can safely say that the investment climate has improved significantly, and the chart of the AUD/USD currency pair will take an upward trend due to the strengthening of the Australian dollar against the dollar. See the price behavior in the image below:
Unlike the previous example, the impact of the news publication on the market was more extended in time and lasted 1 hour and 10 minutes, but despite this, almost the entire movement, which amounted to 27 points, occurred in the first twenty minutes. After the price passed this distance, a narrow flat formed in the market.
On 08/11/2015, after a two-month increase in the business confidence index, all analysts were inclined to believe that there would be another increase to the level of 11, but the information that appeared told us the opposite, since the figure was 8.
Against the backdrop of a gradual increase in the index, such a decline should not go unnoticed, so we should expect a downward movement on the AUD/USD currency pair. The price behavior after negative information is shown in the picture below:
Conversely, as in the first two cases, one can observe the main movement in the first 20 minutes after the news was released, however, the market’s reaction to negative news after expecting another positive one resulted in a strong price movement of 80 points.
If we calculate in general how long it took the price to move towards the given goal, we get 1 hour and 15 minutes. After the market reaction to the index ended, the chart moved sideways.
On 09/08/2015, there was an opinion on all news resources that the level of decline in the business confidence index would fall to zero for the first time in a year, but the information released in 1 brought hope, albeit small, into the hearts of traders that the investment climate was not all that bad.
Therefore, despite the general deterioration of the situation, we should expect growth in the AUD/USD currency pair. See the reaction to the positive news in the picture below:
The example shows that, as in the previous considered options, the market reacted very quickly and covered a distance of 31 points in 15 minutes. Of course, then the price also continued to rise, but at the end of the market reaction there was a pullback, which would have knocked you out of the open position with a stop loss.
Based on four examples, the conclusion is that this index does not have a significant impact on the market, since in none of the examples there is a strong reaction that we can observe after the statements of the heads of central banks. But, despite this, it is clearly visible that the market reacts to the received data, pushing the price chart with a quick impulse of 20-30 points.
Speaking in numbers, if you set a minimum fixed profit of 27 points and the same stop order, you could get 27+27+27+27=108 points of profit by entering the market only four times. In conclusion, I would like to add that after the publication of data, the market storms for 15-20 minutes and during this time the main movement occurs, so when trading you should not hold a position for a long time in the hope that the market will move further in your direction.