AUD/USD – Little Change as Markets Await Bernanke Comments

The Australian dollar had a banner day on Tuesday, climbing about 150 points, after the RBA minutes pointed to some weakening in the central bank’s easing bias. AUD/USD has settled down on Wednesday, trading in the mid-0.92 range early in the North American session. In economic releases on Wednesday, the sole Australian release is MI Leading Index, which posted a weak gain of 0.2%. In the US, all eyes are on Washington, as Federal Reserve head Bernard Bernanke testifies before a congressional committee. US releases did not impress, as Building Permits sagged to a three-month low. Housing Starts fared even worse, posting its weakest numbers since September 2012.

The Federal Reserve will again be on center stage on Wednesday, as Fed chief Bernard Bernanke testifies before a congressional committee in Washington. Bernanke will present the Fed’s Semiannual Monetary Policy Report, and the markets will be looking closely for any hints about QE tapering. The markets posted huge moves last week, after the release of the Fed’s policy minutes and dovish comments from Bernanke. The minutes pointed to a split amongst Fed policymakers weather to tighten QE sometime in 2013, or wait until the labor market improves. This was followed by speech by Bernanke, in which he said that the Fed would maintain a loose monetary policy for the foreseeable future, due to low levels of inflation and a high US unemployment rate. The dollar took a sharp hit following these developments. The markets will be looking for some guidance from Bernanke’s testimony, and if he hints at a timeline for QE tapering, we could see some volatility in the currency markets.

On Tuesday, the Aussie soared higher against the US dollar, taking advantage of the release of the minutes from the RBA’s last policy meeting. At that time, the RBA maintained the key interest rate at 2.75%. The minutes stated that the Australian dollar’s recent decline and previous interest rate cuts meant that the current rate level was appropriate. This appears to lessen the likelihood that the RBA will lower rates in August, and the Australian dollar received a much-needed boost as a result. At the same time, the RBA did reiterate that the current outlook of low inflation did leave room for further rate cuts, so the possibility that the RBA could lower rates should not be discounted.

One important factor weighing on the Australian dollar is lower growth in China. The Asian giant is Australia’s number one trading partner, so weaker demand out of China could spell bad news for Australian exports, and also hurt the Aussie. This week’s Chinese releases pointed to weakness in the Chinese economy. GDP dropped from 7.7% to 7.5% in Q1. These figures are certainly high compared to the numbers in Western countries, but are significantly lower than the figures China has been posting in recent years. Industrial Production dropped from 9.2% to 8.9%, its lowest level since September 2012.

AUD/USD for Wednesday, July 17, 2013

AUD/USD July 17 at 13:45 GMT

AUD/USD 0.9273 H: 0.9292 L: 0.9192

AUD/USD Technical

AUD/USD has settled down in Wednesday trading, as the pair tries to consolidate Tuesday’s strong gains. AUD/USD is facing resistance at 0.9328. This is not a strong line, and could face pressure if the Aussie posts further gains. This is followed by resistance at 0.9405. On the downside, the pair is receiving support at 0.9221. This is followed by a support level at 0.9135.

• Current range: 0.9221 to 0.9328

Further levels in both directions:

• Below: 0.9221, 0.9135, 0.9072, 0.9000, 0.8916 and 0.8747
• Above: 0.9328, 0.9405, 0.9541 and 0.9657

OANDA’s Open Positions Ratio

AUD/USD ratio is showing little change in Wednesday trading, in sharp contrast to the strong activity we saw on Tuesday. This is reflected in what we are seeing from the pair, as AUD/USD has settled down and is trading in the mid-0.92 range.

AUD/USD has quieted down after posting strong gains on Tuesday. Weak housing and construction data out of the US did not affect the pair, but we could see some volatility later on, with Bernanke’s testimony still to come.

AUD/USD Fundamentals

• 00:30 Australian MI Leading Index. Actual 0.2%.
• 12:30 US Building Permits. Estimate 1.00M. Actual 0.91M.
• 12:30 US Housing Starts. Estimate 0.96M. Actual 0.84M.
• 14:00 US Fed Chairman Bernard Bernanke testifies before the House Financial Services Committee in Washington.
• 14:30 US Crude Oil Inventories. Estimate -1.9M.
• 16:30 US Federal Reserve Governor Sarah Bloom Raskin Speaks.
• 18:00 US Beige Book.

*Key releases are highlighted in bold

*All release times are GMT

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