AUD/USD – Aussie Plunges as CPI Points to Deflation

The Australian dollar has posted sharp losses on Wednesday, reversing the upward trend which marked the Tuesday session. AUD/USD is trading at the 0.76 line in the North American session. In economic news, Australian CPI disappointed the markets, posting a decline of 0.3%. Later in the day, Australia releases Import Prices. In the US, the Federal Reserve will release its April policy statement, with the markets expecting no change to the current benchmark interest rate of 0.25%. Pending Home Sales looked excellent, posting a strong gain of 1.4%. This easily beat the forecast of 0.3%.

On Tuesday, the Australian dollar sustained its sharpest daily loss in 2016, dropping 140 points. The plunge was in response to a surprisingly weak Consumer Price Index report, which is published each quarter. CPI for the first quarter came in at -0.2%, well off the estimate of +0.3%. This marked the index’s first decline since 2008, and has sent alarm bells ringing at the RBA. Sally Auld of  JPMorgan Chase called the CPI number a “game changer”, and there is now a much stronger likelihood that the RBA will respond with a rate cut at next week’s policy meeting. The RBA has held rates steady at 2.00% since April 2015, but the RBA has consistently said that it will take action and lower rates if economic conditions warrant such a move. The RBA would prefer  a weaker Australian dollar, and the weak Q1 CPI reading could be the excuse the RBA has been waiting for to take monetary action.

The Federal Reserve is on center stage on Wednesday, as the Fed concludes its monthly meeting with a policy statement later in the day. With the Fed widely expected to maintain interest rates at the current level of 0.25%, the markets will be carefully monitoring the tone of the policy statement and looking for clues about a June hike. Janet Yellen has sounded cautious about the health of the US economy, and if the Fed continues on this path and sends out a dovish message, the dollar could soften against its major rivals.

US manufacturing indicators continue to post soft readings, indicative of a weak manufacturer sector that has lagged behind a strong US economy. Earlier this week, durable goods reports missed expectations. Core Durable Goods, a key indicator, dropped 0.2%, well off the estimate of a 0.6% gain. This marked the fourth decline in five months. Durable Goods Orders was stronger at 0.8%, but also missed expectations, as the estimate stood at 1.9%. Recent manufacturing reports, such as the Philly Fed Mfg. Index, have also been soft, as the industry has been hard-hit by weak global demand and a downturn in the US oil industry due to low crude prices.

AUD/USD Fundamentals

Tuesday (April 26)

• 21:30 Australian CPI. Estimate 0.3%. Actual -0.2%
• 21:30 Australian Trimmed CPI. Estimate 0.5%. Actual 0.2%

Wednesday (April 27)

• 8:30 US Goods Trade Balance. Estimate -62.5B. Actual -56.9B
• 10:00 US Pending Home Sales. Estimate 0.3%. Actual 1.4%
• 10:30 US Crude Oil Inventories. Estimate 1.4M
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <0.50%
• 21:30 Australian Import Prices. Estimate -0.9%

Thursday (April 28)

• 8:30 US Advance GDP. Estimate 0.7%.
• 8:30 US Unemployment Claims. Estimate 258K

*All release times are EDT

AUD/USD for Wednesday, April 27, 2016

AUD/USD April 27 at 10:00 EDT

Open: 0.7745 Low: 0.7587 High: 0.7765 Close: 0.7597

AUD/USD Technical

• AUD/USD posted sharp losses in the Asian session. The pair has shown limited movement in the European and North American sessions.
• 0.7560 is a weak support line
• There is resistance at 0.7678
• Current range: 0.7560 to 0.7678

Further levels in both directions:

• Below: 0.7560, 0.7472 and 0.7339
• Above: 0.7678, 0.7796, 0.7913 and 0.8054

OANDA’s Open Positions Ratio

AUD/USD ratio is showing long and short positions almost evenly split. This is indicative of a lack of trader bias as to what direction AUD/USD will take next.

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.