AUD/USD – Aussie Struggling After Surprise Rate Cut

The Australian dollar has managed to stem this week’s sharp slide, but remains under pressure. The Aussie was hit by a double whammy earlier this week, as Australian Retail Sales missed its estimate. This was followed by an unexpected reduction in interest rates by the Reserve Bank of Australia. AUD/USD was trading slightly below the 1.02 line in Wednesday’s European session. In economic releases, the US will release Crude Oil Inventories and auction off 10-year bonds. There are no Australian releases on Wednesday.

The week didn’t start out well for the Australian dollar, as Retail Sales, one of the most important consumer spending indicators, was well off the estimate. The indicator declined 0.4%, a three-month low. The markets had expected a 0.2% gain. Then, the RBA intervened and took action. 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. The RBA showed no hesitation in cutting rates in 2012, but the Australian economy has not responded as hoped, and remains weak. With the flurry of excitement over the rate cut, Tuesday’s other Australian releases almost went 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.

 Looking at Japan, USD/JPY continues to trade at high levels. 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 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, and hit the elusive 100 level.

In China, Wednesday’s Trade Balance numbers looked sharp. After a rare deficit in the April reading, China reported a surplus of $18.2 billion in the May release. This beat the estimate of $15.5 billion, and was the key indicator’s best showing since February. However, traders should treat China’s trade data with caution, as the trade figures could be inflated to mask capital inflows into the country. Analysts have noted that a weak global economy has led to less demand for Chinese experts, so the figures being released by Chinese officials may not be accurate. Inaccurate economic figures out of China can pose a serious problem for traders and investors following AUD/USD, as China is Australia’s most important trading partner, and key data out of China is often a market-mover.

 

AUD/USD for Wednesday, May 8, 2013

Forex Rate Graph 21/1/13
 

AUD/USD May 8 at 11:35 GMT

AUD/USD 1.0196 H: 1.0252 L: 1.0155

 

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 trade close to the 1.02 level in Wednesday 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 receiving support at 1.0174. This line was breached earlier today, and could continue to see activity. The next support level is at 1.0080, which is protecting the critical parity line.

Current range: 1.0174 to 1.0230

 

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 has reversed direction and is currently pointing to movement towards long positions. This is not reflected in the pair’s current movement, as AUD/USD trades quietly close to the 1.02 line. 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.

It’s been a downhill ride for AUD/USD this week, as the pair struggles to stay in 1.02 territory. We could be in for a uneventful day from the pair, but this will likely not be the case for long, as Australia releases key employment data early on Thursday.

 

AUD/USD Fundamentals

  • 12:30 US FOMC Member Jeremy Stein Speaks.
  • 14:30 US Crude Oil Inventories. Estimate 2.1M.
  • 17:00 US 10-year Bond Auction.
  • 18:00 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.