AUD/USD – Sharp Drops After Bernanke Comments

AUD/USD continues to struggle, as the pair flirted with the 0.96 line earlier on Thursday. This time the bad news for the Aussie was not due to a weak Australian release, but from Federal Reserve Chair Bernard Bernanke. In economic news, US Existing Home Sales fell below expectations, and the Fed released the minutes of its last policy meeting. In Australia, MI Inflation Expectations remained steady. Later in the day, the US will release two key events – Unemployment Claims and New Home Sales.

The Aussie’s misery continues, and the currency has lost six cents against the US dollar since the beginning of May. The Australian dollar took another hit on Wednesday, following remarks by Bernard Bernanke, who was testifying before a Congressional committee. Bernanke initially stated that tightening monetary policy could hurt the US recovery. However, he later said that a decision to scale back QE could be taken in the “next few meetings” if the US economy improves. The bottom line? Bernanke’s comments still leave the markets guessing as to the Fed’s plans regarding the current quantitative easing (QE) program. The Fed is not making any changes to its monetary policy, but that could change if the US economy improves and unemployment falls. 

The Australian dollar got no help from Chinese Manufacturing PMI, which pointed to contraction for the first time since October. The index fell to 49.6 points, missing the estimate of 50.5 points. On Tuesday, the RBA released the minutes of its most recent policy meeting. At that time, the RBA surprised the markets with a rate cut from 3.0% to 2.75%, and the Aussie has been on a sharp downhill ride ever since. The RBA minutes stated that the RBA reduced rates in response to low inflation and a strong Australian dollar, which were hindering economic growth. The central bank also predicted improvement in the economies of Australia’s major trading partners – China, Japan and the US. This is expected to boost Australian exports and help the struggling economy. Meanwhile, the Aussie’s free-fall in recent weeks make another rate cut in the near future less likely.

Almost overshadowed by Bernanke’s remarks in Congress was the release of the minutes from the FOMC’s last policy meeting. The minutes indicate that the US recovery will have to gain more traction before the Fed winds down QE. Policy members were split, as some suggested scaling back QE in June (at the next policy meeting), while others wanted to increase QE, given the weak inflation readings we are seeing. It should be noted that the FOMC minutes relate to a meeting which took place at the beginning of May, in contrast to the fresh testimony of Bernanke on Wednesday.

 

AUD/USD for Thursday, May 23, 2013

Forex Rate Graph 21/1/13
 

AUD/USD May 23 at 11:40 GMT

AUD/USD 0.9698 H: 0.9734 L: 0.9594

 

AUD/USD Technical

S3 S2 S1 R1 R2 R3
0.9405 0.9541 0.9651 0.9727 97.95 0.9907

 

AUD/USD continues to show volatility on Thursday. The pair is facing resistance at 0.9727. Given the pair’s volatility, this line cannot be considered safe. There is stronger resistance at 97.95. On the downside, there is weak support at 0.9541. The next support line is at 0.9405.

  • Current range: 0.9651 to 0.9727

 

Further levels in both directions:

  • Below: 0.9727, 0.9651, 0.9541, 0.9405 and 93.28
  • Above: 0.9795, 0.9907, 1.00 and 1.0080

 

OANDA’s Open Positions Ratio

AUD/USD ratio is showing slight movement towards long positions in Thursday trading. The pair has shown some upward movement after its sharp losses on Wednesday. The ratio continues to heavily favor long positions, as the sliding pair has covered a large number of short positions.

The Australian dollar is showing a lot of movement, triggered by Fed Chairman Bernanke’s comments about QE on Wednesday. We could see more volatility from the pair during the day, as the US releases key housing and employment data later.

 

AUD/USD Fundamentals

  • 1:00 Australian MI Inflation Expectations. Actual 2.3%
  •  10:05 US FOMC Member James Bullard Speaks.
  • 12:30 US Unemployment Claims. Estimate 347K.
  • 13:00 US Flash Manufacturing PMI. Estimate 51.6 points.
  • 13:00 US HPI. Estimate 0.9%..
  • 14:00 US New Home Sales. Estimate 429K.
  • 14:30 US Natural Gas Storage. Estimate 90B.

 

*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.