AUD/USD – Rangebound as Debt Talks Remain Deadlocked

AUD/USD is rangebound in Wednesday trading as the pair continues to trade in the low-95 range in the European session. High-level talks continue in Washington, as the Republicans and Democrats race against the clock to reach an agreement on raising the debt ceiling before Thursday’s deadline. In economic news, it’s a very quiet schedule on Wednesday, with only one data report out of the US – NAHB Housing Market Index. There are no releases out of Australia on Wednesday.

The Australian dollar continues to look strong this week. AUD/USD pushed close to 0.9550 on Tuesday, its highest level since mid-June. The currency got a boost following the release of the RBA minutes, which indicated that the central bank was leaning to maintaining present rate levels, as previous cuts were still affecting the economy. The minutes took note of the recent appreciation of the Australian dollar, but questioned whether this trend would continue. Analysts note that with the Australian economy showing signs of improvement, the RBA has no problem remaining on the sidelines while keeping a watchful eye on the economy.

The clock continues to tick away as politicians in Washington scramble to reach an agreement on the debt limit. The US debt stands at $16.7 trillion, and the debt limit will be reached on Thursday if Congress fails to reach an agreement to raise the limit. If the limit is reached, the US treasury will be unable to pay all of the country’s bills. This could lead to the US defaulting on its debt, which could cause chaos in the domestic and international markets. The Republicans have floated proposals which would delay some provisions in President Obama’s healthcare plan. The Democrats have countered that they will only talk about health care once an agreement is reached. With both sides continuing to play hardball, the relative calm we’ve seen in the markets could quickly dissipate if the two sides cannot reach some compromise.

As the politicians in Washington continue to squabble and shoot down rival proposals to end the debt deadlock, Fitch Ratings warned on Tuesday that it could cut the US’s triple AAA rating if the crisis is not resolved. Fitch stated that it would not make any moves before early 2014, but the statement reflects growing frustration in the markets over the continuing inability of Congress to agree on a budget or the raising of the debt ceiling. The well-respected ratings agency has put the US debt on a negative watch and said that the crisis had cast doubt over the credit of the United States and had undermined confidence “in the role of the US dollar as the pre-eminent global reserve currency”.

With the markets transfixed by the crisis in Washington, US economic releases, even major events, have been shunted to the backburners. However, Thursday’s US Unemployment Claims is a key release that could affect the US dollar. With major releases such as Non-Farm Payrolls on hold due to the US shutdown, Unemployment Claims has magnified in its importance. Last week’s release was not considered accurate due to technical problems, so tomorrow’s numbers are being eagerly awaited. The markets are bracing for another weak release, with an estimate of 357 thousand.

AUD/USD for Wednesday, October 16, 2013

AUD/USD October 16 at 12:00 GMT

AUD/USD 0.9525 H: 0.9548 L: 0.9508

AUD/USD Technical

• AUD/USD is showing very little movement in Wednesday trading.
• The pair faces resistance at 0.9613. This is followed by resistance line at the round number of 0.9700.
• On the downside, the pair is receiving weak support at 0.9508. This line could fall if the US dollar shows some strength. This is followed by a strong support line at 0.9400.
• Current range: 0.9508 to 0.9613

Further levels in both directions:

• Below: 0.9508, 0.9400, 0.9328, 0.9221 and 0.9135
• Above: 0.9613, 0.9700, 0.9821 and 0.9900

OANDA’s Open Positions Ratio

A majority of the open positions in the AUD/USD ratio are long, reflecting a trader bias towards the Australian dollar continuing to gain ground.

The Australian dollar has taken a pause after posting gains earlier in the week. With talks in Washington over the debt going right to the wire, we could see some volatility from AUD/USD in the North American session if an agreement is reached.

AUD/USD Fundamentals

• 14:00 US NAHB Housing Market Index. Estimate 58 points.
• 18:00 US Beige Book.
• 21:30 US FOMC Member Esther George Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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