AUD/USD: Flat as US Inflation Data Improves

AUD/USD is listless on Wednesday, as the pair trades in the mid-0.93 range late in the European session. In the US, Fed chair Janet Yellen continues her testimony on Capitol Hill. On the release front, US PPI improved to 0.4% last month. There was only one Australian event, as MI Leading Index posted a weak gain of 0.1%, unchanged from a month earlier.

US inflation numbers have been weak, so the markets were pleasantly surprised with the June release of the Producer Price index, the primary gauge of inflation in the manufacturing sector. The index improved to 0.4%, beating the estimate of .02%. With the Federal Reserve saying that a rate hike could be pushed forward if inflation and employment data exceeds expectations, stronger inflation numbers such as the June PPI will put more pressure on the Fed to raise rates.

The dollar responded positively to Fed chair Yellen’s testimony before a Senate committee on Tuesday. Yellen stated that given current economic conditions, monetary stimulus was still required, but rates could increase sooner than expected if inflation and job numbers improved more quickly than forecast. The markets were quick to give a thumbs-up to the prospect of earlier rate increases, and EUR/USD continues to lose ground. The Fed’s asset purchase program (QE) has flooded the economy with over $2 trillion, keeping interest rates at ultra-low levels, but the Fed has been steadily reducing the program since last December. Currently, the Fed is pumping $45 billion/month into the economy, and the next taper is expected in August, with plans to terminate QE in October.

US retail sales releases, the primary indicators of consumer spending, marked the first key events of the week. Retail Sales slipped to 0.2%, well off the estimate of 0.6%. There was better news from Core Retail Sales, which excludes the most volatile items included in Retail Sales. The indicator improved to 0.4%, a three-month high. This was just shy of the estimate of 0.5%. There was excellent news from the manufacturing sector, as the Empire State Manufacturing Index jumped to 25.6 points, its third straight rise.

The RBA released the minutes of its last policy meeting on Tuesday. The central bank didn’t squander the opportunity to take a swiped at the high value of the Australian dollar, as the minutes noted that the exchange rate “remained high by historical standards” and was hampering attempts to achieve balanced growth in the economy. The RBA has sent out this message before, but the Aussie has been able to recover quite quickly from any losses which occurred following such statements.

 

AUD/USD for Wednesday, July 16, 2014

AUD/USD July 16 at 14:25 GMT

AUD/USD 0.9362 H: 0.9372 L: 0.9330

 

AUD/USD Technical

S3 S2 S1 R1 R2 R3
0.9119 0.9229 0.9361 0.9446 0.9617 0.9757

 

  • AUD/USD lost ground in the Asian session. The pair has recovered partially since then, edging higher in the European and North American sessions.
  • On the downside, 0.9361 was breached earlier in the day and remains fluid. There is stronger support at 0.9229.
  • 0.9446 is the next resistance line. This is followed by resistance at 0.9617.

Further levels in both directions:

  • Below: 0.9361, 0.9229, 0.9119 and 0.9000
  • Above: 0.9446, 0.9617, 0.9757 and 0.9842

 

OANDA’s Open Positions Ratio

AUD/USD ratio is pointing to gains in long positions in Wednesday trade, reversing the direction seen a day earlier. This is not consistent with the lack of movement by the pair. The ratio is made up of a majority of long positions, indicative of trader bias towards the Australian dollar breaking out and posting gains.

 

AUD/USD Fundamentals

  • 12:30 Australian MI Leading Index. Actual 0.1%.
  • 12:30 US PPI. Estimate 0.2%. Actual 0.4%.
  • 12:30 US Core PPI. Estimate 0.2%. Actual 0.2%.
  • 13:00 US TIC Long Term Purchases. Estimate 27.4B. Actual 19.4B.
  • 13:15 US Capacity Utilization Rate. Estimate 79.4%. Actual 79.1%.
  • 13:15 US Industrial Production. Estimate 0.4%. Actual 0.2%.
  • 14:00 US Federal Reserve Chair Janet Yellen Testifies Before House Financial Services Committee.
  • 14:00 US NAHB Housing Market Index. Estimate 51 points. Actual 53 points.
  • 14:30 US Crude Oil Inventories. Estimate -2.1M. Actual -7.5M.
  • 16:00 US FOMC Member Richard Fisher Speaks.
  • 18:00 US Beige Book.

* 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.