AUD/USD – Australian Dollar Climbs as Chinese Trade Surplus Jumps

The Australian dollar is looking sharp, as the currency hit a one-month high against its US counterpart in Thursday’s trading. The aussie, which has climbed all the way to the 1.0570 range, was buoyed by an outstanding Chinese Trade Surplus, which was much stronger than expected. AUD/USD managed to shrug off a weak Australian Building Permits, which failed to meet the estimate. In the US, today’s highlight is the weekly Unemployment Claims.

Last week, the markets breathed easier as the fiscal cliff crisis in the US was averted, with no time remaining on the clock. Congress managed to craft together a compromise which all sides could agree to, albeit with some reluctance. However, the story is by no means over, and this recent battle, which grabbed the news headlines for several weeks, appears to have just been the first round. More battles are imminent, as the hard-fought fiscal cliff deal left two critical issues – the debt ceiling and spending cuts, for another day. Democrats and Republicans are likely to tangle in Congress at the end of February, as the country reaches the $16.4 trillion debt ceiling. If the debt ceiling is not raised, the result would be the default of the US government, which undoubtedly would cause chaos in the markets. Republicans have vowed to condition raising the debt ceiling on deep spending cuts, which the Democrats strongly oppose. In March, the fiscal cliff could again rear its head, as $110 billion in spending cuts will kick in if Congress cannot agree on a new budget.

Taking a look at fundamentals, the Australian dollar got a big boost on Thursday from some excellent Chinese data. The Chinese Trade Surplus ballooned to 31.6 billion dollars, stunning the markets which had anticipated a much lower surplus of 20.1B. The strong numbers point to a recovery by the world’s number two economy. This is great news for the Australian dollar, as China is Australia’s number one trading partner. The numbers out of China overshadowed today’s lone Australian release, which was Building Approvals. The key construction indicator rebounded nicely from a sluggish December, posting a gain of 2.9%. However, this was well below the estimate of 4.0%. In the US, the markets will be watching the weekly Unemployment Claims. The key employment indicator disappointed last week, hitting 372 thousand, which was well above the estimate. The markets are expecting an improvement in the upcoming release, with an estimate of 361K. Traders should also note that as expected, the European Central Bank did not cut its benchmark interest rate on Thursday. The ECB has kept the rate pegged at this level since July.

On the topic of China, the Chinese Academy of Sciences issued a report that Chinese economy will overtake that of the United States by 2019. Although the report was scant on details, there is no arguing that the country continues to churn out exceptionally high growth rates, and could become an economic rival of the US. The fact that the Chinese economy is growing quickly clearly has important ramifications for the Australian dollar, given the close economic relationship between China and Australia.

AUD/USD for Thursday, January 10, 2013

AUD/USD January 10 at 13:05 GMT

1.0571 H: 1.0587 L: 1.0494

AUD/USD Technical

S3 S2 S1 R1 R2 R3
1.0424 1.0508 1.0568 1.0605 1.0718 1.0874

AUD/USD is sharply higher in today’s trading, following a very strong Trade Balance release from China. The pair climbed as high as 1.0587, and is putting pressure on the next resistance line, which is at 1.0605. This line has held in place since September, so if it were to fall, this would very significant. On the downside, the pair is receiving support at 1.0508. This line has strengthened significantly as the pair trades close to the 1.06 level.

Current range: 1.0568 to 1.0605.

Further levels in both directions:
• Below: 1.0568, 1.0508, 1.0424, 1.0376, 1.0334, 1.0230, 1.0174 and 1.0080.
• Above: 1.0605, 1.0718, 1.0874 and 1.0961.

OANDA’s Open Position Ratios

The AUD/USD ratio continues to be marked by a strong shift towards in favor of short positions. This continuing shift points to an expectation that the aussie will weaken against its US counterpart. The current trend, however, is a strong move upward by the Australian dollar.

The Australian dollar has flexed some muscle following unexpectedly strong Chinese data. Is this a temporary event, or will the upward trend continue? If the aussie can push above the psychologically significant 1.06 number, we could see the upward push gain further momentum.

AUD/USD Fundamentals

• 00:30 Australian Building Approvals. Estimate 4.0%. Actual 2.9%.
• 13:30 US Unemployment Claims. Estimate 361K.
• 15:00 US Wholesale Inventories. Estimate 0.2%.
• 15:30 US Natural Gas Storage. Estimate -185B.
• 18:00 US 30-year Bond Auction.
• 18:10 US FOMC Member Esther George Speaks.
• 19:00 US FOMC Member James Bullard Speaks.

*Key releases are highlighted in bold
*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.