AUD/USD – Rebounds After Recent Losses

AUD/USD has rebounded in Wednesday trading, as the pair was trading in the low-0.96 range in Wednesday’s session. In economic news, Australian HIA New Home Sales posted a strong gain of 3.9%,  but Construction Work Done disappointed, as it declined by 2.0%. It’s a quiet day in the US, as the sole US release is a speech by FOMC Member Eric Rosengren.

The Aussie will want to delete the month of May and move on, as the currency has plunged more than seven cents against the US dollar this month. The greenback has taken advantage of the RBA interest rate cut, lukewarm Australian data and the government’s budget which pointed to the high value of the Australian dollar as an impediment to economic growth. These factors have resulted in nervous investors shifting their funds to US assets, resulting in the Aussie plunging in value.

The Japanese government and BOJ have declared deflation as Public Enemy Number One, and the BOJ has embarked on an aggressive monetary easing program, as it seeks to double the monetary base within two years. However, inflation indicators continue to point to deflation, despite these efforts. Corporate Services Price Index, which measures corporate inflation, actually worsened, as the indicator fell from -0.2% to -0.4%. Critics of the government’s agenda say economic growth cannot be created by monetary policy alone, and deflation continues to hobble the Japanese economy. If inflation doesn’t start to pick up, the government will face pressure to take additional steps to kick-start the economy.

In the US, the Federal Reserve hasn’t made any changes to the current round of quantitative easing, which stands at $85 billion in asset purchases each month. Fed policymakers, including Fed Chair Bernanke, have not been shy about dropping clues that QE could be altered or even terminated in the next few months. The currency markets have reacted sharply to such talk, and much of the volatility we are seeing in the currency markets is a reflection of market uncertainty as to what the Fed plans to do. Talk of an end to QE has given a boost the dollar, and we can expect the currency markets to continue to be very sensitive to further talk of tapering QE.

AUD/USD for Wednesday, May 29, 2013

AUD/USD May 29 at 12:00 GMT

AUD/USD 0.9632 H: 0.9670 L: 0.9624

AUD/USD Technical

AUD/USD has jumped sharply in Wednesday trading. The pair continues to receive strong support at 0.9541. This is followed by support at 0.9405, protecting the 94 line. On the upside, there is resistance at 0.9651. This line could face pressure if the Aussie continues to push higher. The next line of resistance is at 97.27.

• Current range: 0.9541 to 0.9651

Further levels in both directions:

• Below: 0.9541, 0.9405, 93.28 and 92.21
• Above: 0.9651, 0.9727, 0.9795, 0.9907 and 1.00

OANDA’s Open Positions Ratio

AUD/USD ratio is unchanged in Wednesday trading. This is not reflected in what we are seeing from the pair, as the Australian dollar has posted strong gains. The ratio continues to be dominated by long positions, indicating a strong bias towards the Aussie continuing to move upwards against the US dollar.

AUD/USD Fundamentals

• 0:30 Australian MI Leading Index. Actual 0.2%.
• 1:08 Australian HIA New Home Sales. Actual 3.9%.
• 1:30 Australian Construction Work Done. Estimate 1.1%. Actual -2.0%.
• 17:00 US FOMC Member Eric Rosengren Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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.