AUD/USD – Under Pressure as RBA Leaves Room for Futher Cuts

AUD/USD is under pressure, as the pair trades in the high 1.03 range in Tuesday trading. The pair dipped below the 1.03 line in the Asian session, but has recovered. Earlier on Tuesday, the RBA released the minutes of its most recent monetary policy meeting. Australian New Motor Vehicle Sales was a disappointment, as the important consumer indicator declined 0.6%. There are two key events in the US today – Building Permits and Core CPI.

The Australian dollar was in free-fall on Monday, shedding almost two cents against the US currency. There are two fundamental events which helped contribute to this sharp drop. The first was weak Chinese GDP data. The key indicator dropped from 7.9% to 7.7%, and missed the estimate of an 8.0% gain. As China is Australia’s most important market, a slowdown in the Chinese economy spells bad news for the Aussie. Second, the RBA left the door open for further interest cuts at its last policy meeting, and lower rates means the Australian currency is  less attractive to foreign investors.

What is wrong with the US? The country has produced several weeks of poor releases, underscored by four key readings on Friday, all of which missed their estimates. After strong employment numbers on Thursday, there was hope that the US would rebound, but the wheels fell off the cart on Friday. Core Retail Sales and Retail Sales both declined by 0.4%. PPI dropped 0.6%, and UoM Consumer Sentiment came in at 72.3 points, way off the estimate of 79.1 points. The alarm bells may not have gone off just yet, but the continuing weak numbers are raising concerns about the extent of the US recovery. The markets will be hoping for better news from Tuesday’s numbers, as the US releases two key events. 

The Cyprus bailout agreement has been signed, but is the crisis really over? Eurogroup finance ministers met last Friday and approved a EUR 10 billion loan to Cyprus. Under the agreement, Cyprus will have to kick in EUR13 billion. Back in March, Cyprus was only supposed to add another EUR 7 billion. However, the deal collapsed after Cyprus balked at taxing every bank deposit in the country following a huge outcry on the island. Cyprus president Nicos Anastasiades said he will ask the EU for more help, but it not clear if Cyprus is asking additional bailout funds or funds in another form. The bailout agreement calls for huge taxes on deposits over EUR 100,000. Depositors in the Bank of Cyprus will lose between 37.5% and 60%, while depositors in Laiki Bank could lose up to 80%. Under the bailout agreement, Cyprus must restructure its banking sector and impose austerity measures. Even with the bailout, the economy is in for a rough time. Analysts estimate that the country’s GDP will shrink by 13% in 2013 and 2014.

 

AUD/USD for Tuesday, April 16, 2013

Forex Rate Graph 21/1/13
 

AUD/USD April 16 at 10:35 GMT

1.0375 H: 1.0379 L: 1.0308

 

AUD/USD Technical

S3 S2 S1 R1 R2 R3
1.0230 1.0298 1.0350 1.0424 1.0508 1.0568

 

On Tuesday, AUD/USD dipped below the 1.03 line in Asian session before recovering. The pair is facing resistance at 1.0424. This is followed by resistance at 1.0508. On the downside, 1.0350 is providing support. This weak line could be tested  if the Aussie loses any ground.

Current range: 1.0508 to 1.0568.

 

Further levels in both directions:

  • Below: 1.0350, 1.0298, 1.0230 and 1.0174.
  • Above: 1.0424, 1.0508, 1.0568, 1.0605, 1.0718 and 1.0874

 

OANDA’s Open Position Ratios

The AUD/USD ratio is pointing to movement towards long positions. This is not reflected in the current movement of the pair, which has been struggling, unable to sustain momentum in either direction. The ratio is made up of a substantial majority of long positions, indicating a strong bias towards the Aussie bouncing  back against the US dollar.

 AUD/USD remains under pressure, as the pair trades in the high-1.04 range. We could see some volatility from the pair, as the US will release key events later today.

 

AUD/USD Fundamentals

  • 1:30 Australian Monetary Policy Meeting Minutes
  • 1:30 Australian New Motor Vehicle Sales. Exp. -0.6%
  • 2:55 Australian RBA Assistant Governor Guy Debelle Speaks
  • 12:00 US FOMC Member William Dudley Speaks
  • 12:30 US Building Permits. Estimate 0.94M
  • 12:30 US Core CPI. Estimate 0.2%
  • 12:30 US CPI. Estimate 0.0%
  • 12:30 US Housing Starts. Estimate 0.93M
  • 13:15 US Capacity Utilization Rate. Estimate 78.4%
  • 13:15 US Industrial Production. Estimate 0.3%
  • 14:00 US Treasury Secretary Jack Lew Speaks
  • 16:00 US FOMC Member Elizabeth Duke Speaks
  • 19:00 US FOMC Member Janet Yellen Speaks
  • 19:00 US Treasury Secretary Jack Lew 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.