AUD/USD – Aussie Kicks Off Week With Gains

The Australian dollar has posted gains on Monday, as AUD/USD trades at the 0.69 line in the European session. Australian releases started the week on a mixed note, as the MI Inflation Gauge posted a gain of 0.2%, while New Motor Vehicles Sales, an important indicator of consumer spending, came in at -0.5%, its second decline in three months. There are no US releases on the schedule, as US markets are closed for Martin Luther King Day.

US releases wrapped up last week on a mixed note. Core Retail Sales and Retail Sales both posted declines of 0.1%, pointing to weakness in consumer spending, a key driver of economic growth. At the same time, consumer confidence remains at high levels, as the UoM Consumer Sentiment jumped to 93.3 points, beating the estimate and posting a six-month high as well. Inflation levels, one of the sore points in a generally bright economic picture, continue to struggle. PPI, which measures inflation in the manufacturing sector, came in at -0.2%, matching expectations. Still, this marked the third decline in four months, and persistently weak inflation could delay the next Fed rate hike. There was more bad news from the manufacturing front, another trouble spot in the economy. The Empire State Manufacturing Index plunged to -19.4 points, compared to an estimate of -4.1 points.

Nothing seems to be going right for the Australian dollar, which lost 140 points at the end of last week. AUD/USD is currently trading close to 11-year lows, and the downward spiral could continue. Recent events in China have weakened the Aussie, with the Chinese stock market meltdown and the devaluation of the Chinese yuan. Geopolitical tensions in Korea, the Persian Gulf and Indonesia have also contributed to significant movement away from minor currencies like the Aussie towards the safe-haven US dollar. Australian employment data in December was decent, but failed to stop the Aussie’s slide. Employment Change declined by 1000, but this was much better than the estimate of 11,000. The unemployment rate remained steady at 5.8%. With investors remaining jittery about China and geopolitical tensions, there is little appetite for risk and the Australian dollar could continue to struggle.

Is the Federal Reserve planning another rate hike? The Fed raised interest rates in December for the first time in nine years, and hinted that this move was the first of a series in 2016. Not surprisingly, this has led to intense market speculation as to the timing of another rate hike. A rate hike in late January is not considered likely, coming so soon after the December move. A hike by the Fed in March is more probable, contingent of course on a strong US economy. Although the economy is in good shape, one major area of concern is the inflation picture. Inflation levels have not kept up with other economic indicators and remain at low levels. The minutes of the December meeting indicated that some Fed members strongly considered voting against a rate hike due to weak inflation. Another concern is a lack of wage growth, despite a robust labor market. This was underscored by the last Average Hourly Earnings report, which came in at a flat 0.0% in December. The Fed will be keeping a close eye on inflation and wage growth data before reaching a decision to raise rates for a second time.

AUD/USD Fundamentals

Sunday (Jan. 17)

• 18:30 Australian MI Inflation Gauge. Actual 0.2%
• 19:30 Australian New Motor Vehicles Sales. Estimate -0.5%

Monday (Jan. 18)

• There are no scheduled Australian or US releases

*Key releases are highlighted in bold

*All release times are EST

AUD/USD for Monday, January 18, 2016

AUD/USD January 18 at 3:40 EST

AUD/USD Open: 0.6858  Low: 0.6851  High: 0.6928  Close: 0.6895

AUD/USD Technical

• The pair posted considerable gains in the Asian session, and is flat in European trade.
• 0.6848 is a weak support line
• There is resistance at 0.6931
• Current range: 0.6848 to 0.6931

Further levels in both directions:

• Below: 0.6848, 0.6754 and 0.6625
• Above: 0.6931, 0.7063, 0.7100 and 0.7213

OANDA’s Open Positions Ratio

AUD/USD ratio has showed some movement towards short positions. Long positions continue to command a majority of positions (56%), indicative of trader bias towards the pair continuing to move higher.

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.