AUD/USD Lower After Weak Aussie Employment Data

AUD/USD broke out of range trading in the mid-1.05 range, after Australia released disappointing employment data. The Aussie dipped below the 1.05 line, but has recovered slightly, and crossed  back into 1.05 territory. The markets will shift their attention to the US, which will also release key employment data on Thursday. Other US highlights include Building Permits and the Philly Fed Manufacturing Index.

The Australian dollar lost ground following weak Australian employment data. The Unemployment Rate climbed from 5.2% to 5.4%, but this had been expected by the markets. However, Employment Change was a major disappointment. The indicator had rolled off strong gains for three straight months, and the markets had forecast another gain, albeit a much more modest one, at 2.3 thousand newly employed persons. The reading plunged to -5.5K, indicating trouble in the employment situation in the country. The markets noted that this was the second weak employment indicator released this week, as ANZ Job Advertisements also posted a sharp decline earlier this week. The Aussie responded by dropping sharply, briefly breaking through the important 1.05 line.

Australia’s vital export sector has been hit hard by the global slowdown, and there was more bad news about the global economy, this time from the World Bank. In a recent report, the World Bank downgraded its forecast for global growth. In its Global Economic Prospects report, which is issued twice a year, the prestigious institution said that global growth in 2013 would be 2.4%. This was down from the 3.0% estimate the World Bank stated in its June 2012 report. The World Bank noted persistent weaknesses in the economies of developed nations, citing austerity measures, high unemployment and weak business confidence. The report also sounded the alarm over the damage in market confidence due the ongoing fiscal battles in the US, and urged a quick resolution of the issue so as to ensure market stability.

In a speech earlier this week, Fed Reserve Chair Bernard Bernanke may have disappointed some, as he did not give any clues about when the current round of QE might end. Bernanke did little more than express his concern about the speed of the US recovery. He noted that the economy has shown signs of improvement, but he was still unsatisfied with the economy’s progress. Given these sentiments, it seems unlikely that the Fed will consider ending the current round of QE in 2013, barring a spectacular recovery by the US economy during the year. Underscoring this point, the president of the San Francisco Federal Reserve Bank, John Williams, stated that he expected the Fed to continue its bond buying program “well into the second half of 2013.” Although Bernanke avoided talking about QE, he was more forthcoming with regard to the debt ceiling issue, which is likely to be a hot topic, if not a full-blown crisis, in February. The US is quickly approaching its debt limit of $16.4 trillion, and Bernanke said Congress must act and raise the debt ceiling. He further noted that tinkering with interest rates will not make much difference, but that if Congress ensures that the country’s fiscal house is in order, interest rates would gradually rise as the economy improves.

We are seeing plenty of key releases out of the US, but what they are telling us about the direction of the US economy and the extent of the recovery remains unclear. The numbers continue to be a real mix – some are good, some are bad, while others fall within the market estimates. Retail Sales, for example, looked sharp in December, rising 0.5%, and hitting a four-month high. These positive numbers were not reflected in manufacturing data, which continue to look anemic. The Empire State Manufacturing Index dropped -7.8 points, shocking the markets, which had anticipated a gain of 1.9 points. This important index has posted consecutive declines since July, and points to serious weakness in the US manufacturing sector. Unemployment numbers have not looked good in January, and the markets are sure to respond if Thursday’s employment figures are not within the estimate.

AUD/USD January 17 at 13:00 GMT

1.0535  H: 1.0567  L: 1.0494

AUD/USD for Thursday, January 17, 2013

AUD/USD Technical

AUD/USD has shown some volatility, as the pair weakened, and tested the 1.05 line. The proximate support and resistance lines (S1 and R1) remain intact, but 1.0508 is a weak line. It could face further pressure if the pair retreats back towards the 1.05 line. This is followed by strong support at 1.0424. On the upside, 1.0568 is providing resistance, followed by 1.0605.

Current range: 1.0508 to 1.0568.

Further levels in both directions:

• Below: 1.0508, 1.0424, 1.0376, 1.0334, 1.0230 and 1.0174.
• Above: 1.0568, 1.0605, 1.0718, 1.0874 and 1.0961.

OANDA’s Open Position Ratios

The AUD/USD ratio continues to be split, with the short postions enjoying a slight majority of the open positions. This indicates a bias towards the Aussie losing ground against its US cousin. We have seen such a trend today, with the Australian dollar losing ground. If the volatility continues, we are likely to see greater movement in the ratio.

After an uneventful few days, AUD/USD sprang into action as the pair briefly dropped below the 1.05 line. Will the downward trend continue? The markets reacted negatively to weak Australian employment data, and we could see further fluctuation, and possibly a change in direction, after the markets digest key US data later today.

AUD/USD Fundamentals

• 00:30 Australian Employment Change. Estimate 2.3K. Actual -5.5K.
• 00:30 Australian Unemployment Rate. Estimate 5.4%. Actual 5.4%.
• 13:30 US Building Permits. Estimate 0.91M.
• 13:30 US Unemployment Claims. Estimate 369K.
• 13:30 US Housing Starts. Estimate. 0.89M.
• 15:00 US Philly Fed Manufacturing Index. Estimate 7.1 points.

*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.