AUD/USD – Aussie Slides Despite Strong CPI

AUD/USD has posted sharp losses on Wednesday, shedding close to 100 points. The pair is trading close to the 0.96 level in Wednesday’s European session.  The Australian dollar lost ground despite an excellent CPI release, which posted its sharpest gain in four months. It’s a quiet day in the US, with no major events on today’s schedule.

Australian CPI, one of the most important economic indicators, looked solid in September. The index climbed 1.2%, compared to 0.4% gains in the previous two months. This surpassed the estimate of 0.8%. CPI hit a four-month high, but surprisingly, the Aussie failed to take advantage of the strong release and has fallen sharply in Wednesday trading. With such a strong inflation reading, there is less likelihood that the RBA will lower interest rates before 2014.

There was plenty of anticipation leading up to the release of US Non-Farm Payrolls on Tuesday, as the key indicator had been postponed from early October due to the government shutdown. However, the markets were in for a big disappointment, as NFP slipped to 148 thousand in September, compared to 169 thousand in August. This was a six-month low, and well off the estimate of 182 thousand. The US unemployment rate dipped to 7.2%, a five-year low, but this does not point to increased employment, as the participation rate remained at 63.8%, its lowest level since 1978. These figures indicate that the US labor market continues to have difficulty creating new jobs. The US dollar was broadly lower following the weak NFP reading, and the euro gained about one cent against the dollar.

There was some optimism and relief last week, as the Republicans and Democrats finally reached an agreement last week to reopen the government and raise the debt ceiling, following weeks of fighting in Congress. However, the deal provides short-term relief only – the government will be funded until January 15, while the debt limit will be raised until February 7. Both sides have agreed to discuss budget issues and try to reach a long-term agreement before December 13. So we could be right back where we started in just a few months. At the same time, the public is angry at lawmakers for creating the crisis, and with congressional elections only a year away, the politicians on Capitol Hill may think twice before plunging the country into another fiscal and political crisis.

The markets had expected the Federal Reserve to taper QE back in September, but the prolonged shutdown and debt crisis will likely mean that the Fed will shy away from any QE moves until early next year. On Monday, Chicago Fed Reserve President Charles Evans reiterated his support for continued monetary stimulus, saying that the Fed would likely need a few more months of US employment data before reducing QE. Currently, the Fed is purchasing $85 billion worth of bonds each month, and any scaling back will have a strong impact on the US dollar. Evans said that he doesn’t expect the Fed to make a move at the December policy meeting, given that the deal reached in Congress to reopen the government and raise the debt ceiling does so only for a few months. This week’s dismal Non-Farm Payrolls points to trouble in the employment sector, and the Fed has repeatedly stated that it won’t taper QE if employment data does not improve.

 

AUD/USD for Wednesday, October 23, 2013

Forex Rate Graph 21/1/13

AUD/USD October 23 at 11:50 GMT

AUD/USD 0.9619 H: 0.9756 L: 0.9608

 

AUD/USD Technical

S3 S2 S1 R1 R2 R3
0.9400 0.9508 0.9613 0.9700 0.9821 0.9900

 

  • AUD/USD is sharply lower in Wednesday trading. The pair broke through the 0.97 line late in the Asian session and continues to drop in European trading.
  • The pair is facing resistance at 0.9700. This is followed by a resistance line at 0.9821.
  • On the downside, 0.9613 is facing strong pressure and could break if the US dollar continues to move higher. This is followed by a stronger support line at 0.9508.
  • Current range: 0.9613 to 0.9700

 

Further levels in both directions:

  • Below: 0.9613, 0.9508, 0.9400 and 0.9305
  • Above: 0.9700, 0.9821, 0.9900 and 1.00

 

OANDA’s Open Positions Ratio

AUD/USD ratio continues to point to movement towards long positions in Wednesday trading. This is not reflected in the pair’s current movement, as the Australian dollar is down sharply. A majority of the open positions in the AUD/USD ratio are long, reflecting a trader bias towards the Aussie reversing direction and moving higher.

The Australian dollar has posted sharp losses, as the pair trades in the low-0.96 range. With no major releases out of the US today, we could see the pair settle down in the North American session.

 

AUD/USD Fundamentals

  • 00:30 Australian CPI. Estimate 0.8%. Actual 1.2%.
  • 00:30 Australian Trimmed Mean CPI. Estimate 0.7%. Actual 0.7%.
  • 12:30 US Import Prices. Estimate 0.3%. Actual 0.2%.
  • 13:00 US HPI. Estimate 0.8%. Actual 0.3%.
  • 14:30 US Crude Oil Inventories. Estimate 2.7M.

 

*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.