AUD/USD – Slumping Aussie Dips Below Parity

AUD/USD continues to lose ground, and dropped below the all-important parity level on the weekend. The Aussie has been no match lately for the US dollar, which has been broadly higher thanks to strong US employment numbers. In economic news, US releases ended last week on a positive note, as the Federal Budget Balance posted a surplus that was higher than expected. The US will release key retail sales numbers later on Monday. In Australia, the week started on a positive note, as Home Loans jumped 5.2%, easily beating the estimate of 3.8%. However, NAB Business Confidence was a disappointment, slipping from 2 points to -2 points.

What’s wrong with the Aussie? The currency, which was trading close to the 1.04 line at the beginning of May, now finds itself struggling under the parity level. For starters, the RBA rate cut, which surprised the markets, took the wind out of the Australian dollar’s sails. The central bank added more fuel to the fire on Friday, when it forecast in its Monetary Policy Statement that it expected “subdued” growth from the economy. As well, the markets are abuzz with a report that George Soros has taken a large short position on the Australian dollar, and hedge fund manager Stanley Druckenmiller is also bearish on the Aussie.

There was only one major release out of the US last week, and the dollar took advantage, as US Unemployment Claims looked sharp. There were 323 thousand new claims, well below the estimate of 333 thousand. This was the third week in a row that Unemployment Claims has come in below expectations. This points to an improving employment picture in the US, but the markets will want to see strong numbers from other sectors of the economy to be convinced that the US is headed in the right direction.

After a bad streak in April, we are seeing better numbers out of the US, notably employment figures. This has raised speculation that the Fed might adjust or even terminate its QE program, in which it buys $85 billion in assets every month. Terminating the QE program is dollar positive, and the US dollar was broadly stronger against all the major currencies on Friday. The markets will be looking for any clues as to the Fed ending QE, which would likely push the dollar higher.

AUD/USD for Monday, May 13, 2013

AUD/USD May 13 at 12:15 GMT

AUD/USD 99.78 H: 1.0011 L: 99.54

AUD/USD Technical

AUD/USD is dropping sharply, and has dipped below the parity level. The pair is facing weak resistance at parity, and this critical line could see more activity during the day. There is stronger resistance at 1.0080. On the downside, the pair is receiving support at 0.9907. This line is protecting the 99 line. The next support level is 0.9795.

• Current range: 0.9907 to 1.00

Further levels in both directions:

• Below: 0.9907, 0.9795, 0.9627 and 0.9541
• Above: 1.00, 1.0080, 1.01 and 1.0174

OANDA’s Open Positions Ratio

AUD/USD ratio is unchanged as we begin the new trading week. This is not reflected in the pair’s current movement, as AUD/USD continues to lose ground. The ratio is made up of a substantial majority of long positions, as many short positions were covered as a result of the pair’s sharp drop over the past few days.

AUD/USD has shown a lot of volatility, as the pair struggles slightly below the parity line. We could see more volatility from the pair, as the US releases key retail sales numbers later in the day.

AUD/USD Fundamentals

•  1:30 Australian Home Loans. Estimate 3.8%. Actual 5.2%.
•  1:30 Australian NAB Business Confidence. Actual -2 points.
• 12:30 US Core Retail Sales. Estimate -0.1%.
• 12:30 US Retail Sales. Estimate -0.3%.
• 14:00 US Business Inventories. Estimate 0.3%.

*Key releases are highlighted in bold

*All release times are GMT

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