AUD/USD has been showing some movement in both directions in Tuesday trading. The pair fell below the important 1.05 line in the Asian session, but has since recovered during European trading. In Australian releases, AIG Construction Index improved , but the Australian Trade Balance deficit widened last month. It is a quiet day in the US, with only two releases, both of which are third-tier – IBD/TIPP Economic Optimism and Consumer Credit. There was a major development earlier on Tuesday, with an announcement that the Japanese government would purchase bonds from the European Stability Mechanism, which is the Eurozone’s bailout fund. The first debt auction will be on Tuesday, with three-month notes being offered with a value of about 2 billion euros.
The markets breathed a sigh of relief last week, as the fiscal cliff agreement was reached in the US Congress. However, any celebrating would be premature, as it appears that this was just the first round of more bruising battles ahead. The hard-fought agreement, which was preceded by months of acrimony and bad blood between the Republicans and Democrats, was criticized by many analysts and economists as a deal comprised of the lowest common denominator which both sides could reluctantly compromise and agree on. However, the agreement left two critical issues for another day – the debt ceiling and spending cuts. The problem is, the clock on those issues is also winding down, as the debt ceiling will be reached in February, and action will have to be taken to avoid a default on the country’s debt. Otherwise, the real possibility of a US default will likely cause turmoil in the markets.
In economic releases, there were two Australian releases on Monday. The AIG Construction Index showed some improvement, as it climbed to 38.8 points. Although the index is still stuck below 40 points, this was the strongest reading since February. The markets are hopeful that the weak construction sector is showing some signs of improvement. Trade Balance was not as positive. Australia posted a larger deficit in January, which increased to 2.64 billion dollars. This was well above the estimate of a 2.21B deficit. A worsening Trade Balance could point to trouble for the Australian dollar. Later on Tuesday, the US releases two consumer indicators. IBD/TIPP Economic Optimism has been falling, as the indicator continues to point to declining confidence in the US economy. Another weak reading could hurt the US dollar. Consumer Credit looked sharp in December, but the markets are expecting a drop in the upcoming release.
Back in Australia, a report by a respected US economist, Harry Dent, says that Australia could fall into a recession in 2014, if Europe is unable to solve its debt crisis. The Australian economy is already hurting from the global slowdown, and if China, which is Australia’s number one trading partner, experiences an economic slowdown, this will mean less demand for Australian raw materials, such as copper and iron-ore. Underscoring this point, Australian Commodity Prices have been in free-fall, and has been posting declines since May. However, there was some positive news from last week’s release, as the decline of 8.0% was smaller than the previous reading. Dent added that an economic slowdown would lead to an increase in bad business loans, which would in turn hurt the banking sector’s profits and could lead to a drastic drop in housing prices.
AUD/USD for Tuesday, January 8, 2013
AUD/USD January 8 at 11:40 GMT
1.0510 H: 1.0517 L: 1.0470
With AUD/USD dropping below 1.05 earlier on Tuesday and then bouncing back, the line of 1.05 has seen a lot of activity. Currently, it is providing weak support, but could be breached again at any time. The next support level is at 1.0424. On the upside, 1.0568 is providing resistance. This is followed by 1.0605, which was last tested by the pair in September.
Current range: 1.0424 to 1.0508.
Further levels in both directions:
• Below: 1.0508, 1.0424, 1.0376, 1.0334, 1.0230, 1.0174, and 1.0080.
• Above: 1.0568, 1.0605, 1.0718, 1.0874 and 1.0961.
OANDA’s Open Position Ratios
The AUD/USD ratio continues to experience movement in favor of short positions. Trader bias remains split, with a slight advantage to the short positions. However, the slow but steady shift in favor of the short positions component points to an expectation that the aussie will weaken against it US counterpart. The Australian dollar did lose some ground in the Asian session, as it dipped below the 1.05 line. However, it was unable to sustain this move, and the pair is back above 1.05.
The Australian dollar has made some modest gains against the greenback, a move which began late last week. This trend could continue, although we can expect today’s moves to be very modest.
• 00:30 Australian Trade Balance. Estimate -2.21B. Actual -2.64B
• 15:00 US IBD/TIPP Economic Optimism. Estimate 46.3 points
• 20:00 US Consumer Credit. Estimate 12.9B
*Key releases are highlighted in bold
*All release times are GMT