As widely expected, the Reserve Bank of Australia maintained the key interest rate at 2.75%. AUD/USD lost some ground after the RBA said that it continues to keep the door open for further rate cuts. The pair has dropped back below the 0.92 line in Tuesday’s European session. In the US, today’s highlight is Factory Orders. On Monday, Australian Commodity Prices posted their sharpest decline of 2013, dropping 10.5%. The US got off to a good start, as the only key release on Monday, ISM Manufacturing PMI, climbed above the 50 level, which indicates expansion.
There were no surprises from the RBA, which kept interest rates pegged at 2.75% for the third straight month. In its accompanying rate statement, the central bank maintained its easing bias, noting that inflation remains within the RBA’s target, leaving room for further cuts if needed. The RBA added that although the Australian dollar has depreciated by 10% in the past few months, it remains high, and a lower level would help provide a “rebalancing” of economic growth. These negative sentiments about the Australian dollar could push the struggling currency lower.
Global growth has been sputtering for some time, and there was more bad news on Friday, as an HSBC report downgraded its forecast for global growth. Global GDP was cut from 2.8% to 2.0% in 2013, and from 3.1% to 2.6% in 2014. In its report, HSBC said that it had lowered its forecast due to the US Federal Reserve decision to cut QE, as well as a sharp slowdown in China and other emerging countries such as India and Brazil. The report also revised China’s GDP from 8.2% to 7.4% for 2013 and from 8.4% to 7.4% for next year. Weaker global growth will be bad news for countries which heavily depend on exports, such as Japan, Canada and Australia, and this could have a negative impact on these countries’ currencies.
In Australia, the pre-election battles are heating up, as Prime Minister Julia Gillard was defeated in a Labor leadership race last week and was replaced by Kevin Rudd, who takes over as Prime Minister. Elections are expected in September, and Labor is facing an uphill battle to win re-election. However, opinion polls show that Labor will pick up more seats under Rudd’s leadership. Meanwhile, Chris Bowen, a close ally of Rudd, has been appointed Treasurer. Bowen will also have his work cut out for him, as the Australian economy continues to sputter, despite repeated rate cuts by the RBA. Rudd is considered as being business-friendly, and his victory in the Labor leadership race could boost consumer and business confidence, and help prop up the sinking Australian dollar.
AUD/USD for Tuesday, July 2, 2013
AUD/USD July 2 at 11:45 GMT
AUD/USD 0.9168 H: 0.9250 L: 0.9153
AUD/USD has lost ground on Tuesday, and is trading in the mid-0.91 range. The pair is receiving support at 0.9135. This line has weakened as the AUD/USD loses ground, and could face more pressure if the pair’s downward trend continues. There is a stronger support level at 0.9071. On the upside, the pair continues to face resistance at 0.9221. There is a stronger resistance line at 0.9328.
- Current range: 0.9135 to 0.9221
Further levels in both directions:
- Below: 0.9135, 0.9071, 0.9000, 0.8916 and 0.8747
- Above: 0.9221, 0.9328, 0.9405, 0.9541 and 0.9651
OANDA’s Open Positions Ratio
AUD/USD ratio has shifted directions in Tuesday trading, and is pointing to movement towards short positions. This is consistent with what we are currently seeing from AUD/USD, as the Australian dollar has lost ground to the greenback. The ratio continues to be dominated by long positions, indicating a strong trader bias towards the Australian dollar moving higher.
AUD/USD continues to struggle, after a dovish rate statement from the RBA. We could sees stronger volatility from the pair on Wednesday, as Australia and the US release key numbers.
- 4:30 RBA Cash Rate. Estimate 2.75%. Actual 2.75%.
- 4:30 RBA Rate Statement.
- 14:00 US Factory Orders. Estimate 2.0%.
- 14:00 US IBD/TIPP Economic Optimism. Estimate 49.3 points.
- All Day – US Total Vehicle Sales. Estimate 15.3M.
- 16:30 FOMC Member William Dudley Speaks.
- 21:45 FOMC Member Jerome Powell Speaks.
*Key releases are highlighted in bold
*All release times are GMT