AUD/USD – Aussie Slips to 10-Day Lows on Dovish Minutes

The Australian dollar has posted sharp losses on Tuesday, as AUD/USD has dropped below the 0.75 level. In economic news, the RBA minutes pointed to a dovish stance by the central bank regarding a rate cut in the near future. Later in the day, Australia releases the MI Leading Index. In the US, we’ll get a look at construction data, with the release of Building Permits and Housing Starts. Neither indicator is expected to show much change in the June reports.

The RBA published its minutes from its July policy meeting, indicating that there was more room to lower rates, given low inflation levels. However, the minutes added that a monetary move by the bank would be data-dependent. In other words, if inflation and other key indicators show improvement, there will be less pressure on the bank to cut rates in order to boost inflation and bolster economic growth. The RBA caught the markets flat-footed in May, when it lowered rates from 2.00% to 1.75% in response to a dismal CPI release in the first quarter of -0.2%. The next CPI release is due on July 27, and another weak reading could be a sign that the RBA will again lower interest rates in order to boost economic growth.

Meanwhile, the Australian employment market continues to improve. Employment Change gained 7.9 thousand, but this fell short of the forecast of 10.1 thousand. The unemployment rate edged up to 5.8%, matching the estimate. There was positive news on the consumer spending front, as New Motor Vehicle Sales recorded a strong gain of 3.1%, reversing directions after two straight declines. Still, the Australian consumer continues to remain skeptical about the economy, according to the most recent consumer confidence report. Westpac Consumer Confidence slipped 3.0% and fell to 99.1 points (a reading below the 100-level indicates pessimism).

There were no surprises from US inflation numbers on Friday. CPI and Core CPI both posted small gains of 0.2% in June, matching their estimates. These figures showed no change from the previous month, as consumer inflation remains stuck at low levels. Positive manufacturing inflation data on Thursday (Core PPI and PPI both beat their estimates) had raised hopes for stronger CPI numbers as well, but this did not occur. There was much better news on the consumer spending front, as Retail Sales climbed 0.7% and Core Retail Sales gained 0.6%, as both key indicators beat their estimates. This points to stronger consumer spending, a key factor in economic growth. The UoM Consumer Sentiment report dipped below the 90-point level for the first time in three months and was short of expectations. The Federal Reserve is unlikely to raise rates before September at the earliest, unless there is some strong improvement in economic data, particularly inflation and wage growth, which remain at low levels.

AUD/USD Fundamentals

Monday (July 18)

21:30 RBA Monetary Policy Meeting Minutes

Tuesday (July 19)

  • 8:30 US Building Permits. Estimate 1.15M
  • 8:30 US Housing Starts. Estimate 1.17M
  • 20:30 Australian MI Leading Index

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Tuesday, July 19, 2016

AUD/USD July 19 at 6:30 EDT

Open: 0.7575 High: 0.7575 Low: 0.7488 Close: 0.7493

AUD/USD Technical

S3 S2 S1 R1 R2 R3
0.7251 0.7339 0.7472 0.7612 0.7739 0.7835
  • AUD/USD posted strong losses in the Asian session and the downward trend has continued in the European session
  • 0.7472 is under pressure in support and could break in the Tuesday session
  • 0.7612 has strengthened in resistance following sharp losses by AUD/USD
  • Current range: 0.7472 to 0.7612

Further levels in both directions:

  • Below: 0.7472, 0.7339 and 0.7251
  • Above: 0.7612, 0.7739, 0.7835 and 0.7938

OANDA’s Open Positions Ratio

AUD/USD ratio is unchanged on Tuesday, despite sharp losses from AUD/USD. Short positions have a small majority (47%)indicative of slight trader bias towards AUD/USD continuing to move downwards.

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.