AUD/USD – RBA Holds Rates, Aussie Slide Continues

The Australian dollar has posted slight losses on Tuesday, continuing the downward trend which started the week. In the European session, AUD/USD is trading at 0.7560. In economic news, the RBA held interest rates at 2.00%. Australia’s trade deficit widened to A$3.41 billion, much higher than expectations. Later in the day, the US releases ISM Non-Manufacturing PMI, Trade Balance and JOLTS Jobs Openings.

As expected, the RBA stood pat and made no changes to the benchmark rate of 2.00%. The rate has been pegged at this level since last May, and although the RBA has often said it will not hesitate to cut rates, it appears that the central bank has no appetite for lowering rates, despite weak inflation numbers and an economy hurt by weaker Chinese demand. The RBA played the same tune in Tuesday’s rate statement, as Governor Glenn Stevens stated that “continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand.” One could make a solid argument that Australian inflation levels have indeed remained very low for a “continued” period, yet the RBA continues to stand on the sidelines. Given this context, the markets are unlikely to read much into this statement.

Last week’s US employment numbers were solid, pointing to a solid labor market. Nonfarm Payrolls came in at 215 thousand, above the estimate of 205 thousand. The unemployment rate edged up to 5.0%. However, wage growth remains weak, as Average Hourly Earnings posted a small gain of 0.3%, close to the estimate of 0.2%. The markets will be treated to more employment data on Tuesday, with the release of JOLTS Jobs Openings. The estimate for February stands at 5.57 million, which would be an improvement from the previous month’s reading of 5.54 million. Solid job numbers are critical to continued economic expansion and are a key factor in the Fed’s decision-making process regarding another rate hike.

Janet Yellen single-handedly sent the US dollar flying on its backside last week, thanks to a surprisingly dovish speech in New York. Yellen warned of risks to the US economy from uncertainty in the global markets and the slowdown in China, and poured cold water on speculation of an April rate hike. Prior to her speech, several Fed members issued hawkish comments, some going as far as calling for a rate hike at the April policy meeting. The contradictory messages coming out of Fed points to a split in the FOMC concerning monetary policy, although Yellen is likely to have the last word. Mixed messages out of the Fed creates uncertainty that the markets could do without, so analysts will be paying close attention to the Fed minutes on Wednesday, looking for clues as to further rate projections. Traders should be prepared for some volatility after the release of the minutes.

AUD/USD Fundamentals

Monday (April 4)

• 19:30 Australian AIG Services Index. Actual 49.5 points
• 21:30 Australian Trade Balance. Estimate -2.55B. Actual -3.41B

Upcoming Key Events

Tuesday (April 5)

• 00:30 Australian Cash Rate. Estimate 2.00%. Actual 2.00%
• 00:30 RBA Rate Statement
• 8:30 US Trade Balance. Estimate -46.3B
• 9:45 US Final Services PMI. Estimate 51.0
• 10:00 US ISM Non-Manufacturing PMI. Estimate 54.1 
• 10:00 US JOLTS Jobs Openings. Estimate 5.57M
• 10:00 US IBD/TIPP Economic Optimism. Estimate 47.7 

Upcoming Key Events

Wednesday (April 6)

• 14:00 FOMC Meeting Minutes

*All release times are DST

AUD/USD for Tuesday, April 5, 2016

AUD/USD April 5 at 4:10 DST

Open: 0.7596 Low: 0.7559 High: 0.7631 Close: 0.7571

AUD/USD Technical

• AUD/USD posted losses in the Asian session. The pair showed gains in European trade but then retracted
• 0.7678 has strengthened in resistance as AUD/USD continues to lose ground
• 0.7560 was tested earlier in support and is under strong pressure. This line could break during the day
• Current range: 0.7560 to 0.7678

Further levels in both directions:

• Below: 0.7560, 0.7472, 0.7385 and 0.7213
• Above: 0.7678, 0.7796 and 0.7913

OANDA’s Open Positions Ratio

The AUD/USD ratio is unchanged this week, despite sharp losses by AUD/USD. Short positions have a majority (55%), indicative of trader bias towards AUD/USD losing ground.

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.