AUD/USD – Aussie’s Woes Continue after Aust. Budget Release

The Australian dollar continues to slump against the US currency, as the pair was testing the 0.99 line early in Tuesday’s North American session. The Aussie has had a miserable May, losing an astounding four cents since the start of the month. AUD/USD lost more ground on Tuesday after the Australian annual budget pointed to a record deficit. Australian New Motor Vehicle Sales, an important consumer spending indicator, will be released on Wednesday. In the US, there are only two releases on Tuesday.

The slumping Australian dollar got no help from the release of the Australian budget earlier on Tuesday. The government, which faces elections later this year, shied away from deep spending cuts but also was forced to revise an earlier forecast of a surplus. In October, the government stated that it would post a modest surplus of A$2.2 billion for 2013/2014, but was forced to revise this to a record deficit of A$19.4 billion. The government blamed the high Australian dollar and weak commodity prices for a dramatic loss in revenue. Meanwhile, both the Standard & Poor’s and Moody rating agencies maintained Australia’s AAA rating, despite the bleak budget.

The budget release may be weighing on the Australian dollar, but the currency’s was in trouble last week as well. For starters, the RBA rate cut, which surprised the markets, took the wind out of the Australian dollar’s sails. The central bank added more fuel to the fire on Friday, when it forecast in its Monetary Policy Statement that it expected “subdued” growth from the economy. As well, the markets are abuzz with a report that George Soros has taken a large short position on the Australian dollar, and hedge fund manager Stanley Druckenmiller is also bearish on the Aussie.

The US ran into some turbulence in April with disappointing key releases, but we are seeing some improvement, notably from employment figures. This has raised speculation that the Fed might adjust or even terminate its QE program, in which it buys $85 billion in assets every month. Terminating the QE program is dollar positive, and the US dollar was broadly stronger against all the major currencies late last week. The markets will be looking for any clues as to the Fed ending QE, which would likely push the dollar higher. So far, the Federal Reserve has not make any comments that could be construed as indicating any change from the present course of action.

AUD/USD for Tuesday, May 14, 2013

AUD/USD May 14 at 13:25 GMT

AUD/USD 99.12 H: 1.004 L: 98.96

AUD/USD Technical

AUD/USD continues to lose ground, and is currently trading slightly above the 99 line. The pair is facing resistance at the important parity level. This line has strengthened as the pair trades at lower levels. The next resistance line is at 1.0080. On the downside, the pair is testing support at 0.9907. This line was breached earlier, and could fall if the downward trend continues. The next support level is 0.9795.

• Current range: 0.9907 to 1.00

Further levels in both directions:

• Below: 0.9907, 0.9795, 0.9627 and 0.9541
• Above: 1.00, 1.0080, 1.01 and 1.0174

OANDA’s Open Positions Ratio

AUD/USD ratio remains unchanged for the second straight day. This is not reflected in the pair’s current movement, as AUD/USD continues to lose ground. If the pair continues to show strong movement, we can expect the ratio to show activity as well.

AUD/USD can’t seem to find a break, and on Tuesday it was the Australian budget release which helped push the Aussie even lower. In the budget, the government blamed the high value of the Australian dollar for contributing to the bleak economic situation. Perhaps the government will find some comfort in the fact that the Aussie has plunged around four cents in the past two weeks. There is room for the pair to move lower, and much will depend on US and Australian releases on Wednesday.

AUD/USD Fundamentals

• 9:30 Australian Annual Budget Release.
• 11:30 US NFIB Small Business Index. Estimate 89.9 points. Actual 92.1 points
• 12:30 US Import Prices. Estimate -0.5%. Actual 0.5%

*Key releases are highlighted in bold

*All release times are GMT

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