AUD/USD – Aussie Strengthens on Soft US GDP Report

The Australian dollar has posted considerable gains on Friday. In the North American session, AUD/USD is on the move and is trading at 0.7570. On the release front, Australian PPI posted a small gain of 0.2%, within expectations. In the US, Advance GDP was unexpectedly soft, posting a gain of 1.2%, well below expectations. UoM Consumer Sentiment dropped to 90.0 points, very close to the estimate.

US Advance GDP, the first GDP report for the second quarter, was a major disappointment. The markets were expecting a sharp gain of 2.6%, following the Final GDP for Q4 of just 0.8%. However, the economy grew by just 1.2 percent. Although consumer spending remains strong, business spending, manufacturing and other sectors remain soft. The weak figure could dampen expectations for a September rate hike by the Federal Reserve, which remains cautious about the health of the economy. The Australian dollar has taken advantage of the soft GDP report, posting strong gains in Friday’s North American session.

The markets are keeping a close eye on the RBA, which will release a rate statement on Tuesday. Currently, interest rates at pegged at 1.75%. Will the bank lower interest rates for the first time since May? This could well depend on the most recent consumer inflation report. CPI rebounded nicely in the second quarter, posting a gain of 0.4%, compared to a decline of 0.2% in the first quarter. However, inflation remains weak. PPI ,which measures inflation in the manufacturing sector, posted a weak gain of 0.2%, edging above the forecast of 0.1%. Significantly, the annual inflation rate stands at just 1.0%, well below the RBA’s stated target of 2% to 3%. Will this be enough of a factor to prod the RBA into action? We’ll have to wait and see. The markets have priced in a 50% chance that the bank will lower rates next week. Given current economic conditions, many economists expect interest rates to steadily decline, perhaps as low as 1 percent.

There were no dramatic moves by the Federal Reserve, which concluded its policy meeting on Wednesday. The bank continued to hold the course on interest rates, maintaining levels at 0.25% in a 9-1 vote. The Fed statement sounded upbeat but cautious, saying that risks to the economy have receded and the employment market is getting tighter. The Fed added that it continues to monitor inflation levels and noted that the housing sector had improved. Will the Fed make a move and raise rates in September? It appears that the Fed could go either way, and policymakers will make a decision at the September meeting based on the strength of US data.

AUD/USD Fundamentals

Thursday (July 28)

• 21:30 Australian PPI. Estimate 0.2%. Actual 0.1%
• 21:30 Australian Private Sector Credit. Estimate 0.5%. Actual 0.2%

Friday (July 29)

• 8:30 US Advance GDP. Estimate 2.6%. Actual 1.2%
• 8:30 US Advance GDP Price Index. Estimate 1.9%. Actual 2.2%.
• 8:30 US Employment Cost Index. Estimate 0.6%. Actual 0.6%
• 9:45 US Chicago PMI. Estimate 54.3. Actual 55.8
• 10:00 US Revised UoM Consumer Sentiment. Estimate 90.2
• 10:00 US Revised UoM Inflation Expectations. Actual 2.7%

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Friday, July 29, 2016

AUD/USD July 29 at 10:25 EDT

Open: 0.7510 High: 0.7585 Low: 0.7492 Close: 0.7584

AUD/USD Technical

• AUD/USD posted slight gains in the Asian session but surrendered these gains in European trade. The pair has posted strong gains in the North American session
• 0.7560 has switched to a support role following strong gains by AUD/USD. It is a weak line
• 0.7701 is providing strong resistance
• Current range: 0.7560 to 0.7701

Further levels in both directions:

• Below: 0.7560, 0.7440, 0.7339 and 0.7251
• Above: 0.7701, 0.7835 and 0.7938

OANDA’s Open Positions Ratio

AUD/USD ratio is almost unchanged on Friday. Currently, long positions retain a majority (53%), indicative of trader bias towards AUD/USD continuing to gain 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.