AUD/USD – Slides as RBA Cuts Rates

The Australian dollar continues to slide, as the Reserve Bank of Australia cut its benchmark interest rate from 3.00% to 2.75%. AUD/USD fell after the rate announcement, as was trading below the 1.02 level in Tuesday’s European session. With the flurry of excitement over the rate cut, other Australian releases were almost overlooked. In other releases, Australia posted a trade surplus for the first time since last August. HPI was a disappointment, falling well  below the estimate. In the US, we can expect a quiet day, with just two minor releases on the schedule, as well as a speech from Treasury Secretary Jack Lew.

The RBA has caught the market by surprise on previous occasions, and the same could be said on Tuesday, as the central bank slashed rates by 0.25%, to a level of 2.75%. Most analysts had expected the rates to remain unchanged. It was the first reduction in rates since November. The RBA showed no hesitation to cut rates in 2012, but the Australian economy has not responded as hoped, and continues to produce weak releases, for the most part. With the flurry of excitement over the rate cut, today’s other Australian releases went almost unnoticed. Trade Balance posted a surplus of AUD 0.31 billion, beating the estimate of AUD 0.20 billion. More importantly, it was the first monthly surplus since November. HPI did not follow suit, and fell from 1.6% to 0.1%. The markets had anticipated a gain of 1.9%. The Australian dollar has taken a hit, and has lost over one cent against its US counterpart since the start of the week.

USD/JPY continues to trade at high levels, and the pair remains within striking distance of the 100 level. At its recent policy meeting, the BoJ noted that it could take more than two years to reach its 2% inflation target. This possibility has been underscored by recent Japanese inflation releases, which continue to point to deflation in the economy, despite the best efforts of the BOJ to create some inflation. This has fuelled expectations that the BOJ will resort to further easing measures later in the year, as the Prime Minister Abe and BOJ Governor Kuroda have stated very clearly that they will do whatever is needed to stamp out deflation, which has hobbled the Japanese economy for years. So we could see the yen continue to lose ground against the US dollar.

Back in the US, last week’s employment numbers were welcome news, as the US has been churning out mostly weak key releases. Unemployment Claims came in below expectations for the second straight week. The key indicator dropped from 339 thousand to 324 thousand, blowing past the estimate of 346 thousand. On Friday, Non-Farm Payrolls climbed to 165 thousand. This easily beat the estimate of 146 thousand. As well, the Unemployment Rate fell from 7.6% to 7.5%. Improving employment numbers are critical for economic growth, and the markets are hoping that the good news continues.

 

AUD/USD for Tuesday, May 7, 2013

Forex Rate Graph 21/1/13
 

AUD/USD May 7 at 11:00 GMT

AUD/USD 1.0186 H: 1.0252 L: 1.0166

 

AUD/USD Technical

S3 S2 S1 R1 R2 R3
1.00 1.0080 1.0174 1.0230 1.0298 1.0350

 

AUD/USD continues to point downward in Tuesday trading. The pair is facing resistance at 1.0230 on the upside. This is followed by a resistance line at 1.0298, which is protecting the 1.03 level. On the downside, the pair is putting pressure on 1.0174. This line was breached earlier, and could continue to see activity. The next support level is at 1.0080.

Current range: 1.0174 to 1.02230

 

Further levels in both directions:

  • Below: 1.0174, 1.0080, 1.00, and 99.83
  • Above: 1.0230, 1.0298, 1.0350, 1.0424 and 1.0508  

 

OANDA’s Open Positions Ratio

The ratio is pointing to movement towards short positions in Tuesday trading. This is reflected in the pair’s current movement, as AUD/USD continues to post sharp losses. At the same time, long positions continue to make up most of the ratio, indicating a strong bias in favor of the pair moving higher.

The Australian dollar has had a rough start to the week. The currency took a hit as Australian Retail Sales missed its estimate, and continues to tumble as the RBA surprised the markets with a rate cut on Tuesday. AUD/USD has strong downward momentum, and we could see some the Aussie continue to lose some ground as it struggles to find its footing against the US currency. 

 

AUD/USD Fundamentals

  • 1:30 Australian Trade Balance. Estimate 0.20B. Actual 0.31B.
  • 1:30 Australian HPI. Estimate 1.9%. Actual 01%.
  • 4:30 Australian Cash Rate. Estimate 3.00%. Actual 2.75%.
  • 4:30 Reserve Bank of Australia Rate Statement.
  • 14:00 US IBD/TIPP Economic Optimism. Estimate 47.1 points.
  • 19:00 US Consumer Credit. Estimate 16.2B.
  • 20:00 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.