AUD/USD – Lower as Fed Leaves Door Open for QE Tapering

AUD/USD is moving lower in Thursday trading, as the pair is trading in the mid-0.91 line early in the North American session. In economic news, Fed chair Bernard Bernanke continues his testimony in Washington. In economic news out of Australia, the MI Leading Index looked weak. NAB Quarterly Business Confidence was a disappointment, dropping to -1 point. In the US, Unemployment Claims looked sharp. The Philly Fed Manufacturing Index, a key event, will be released later in the day.

There was plenty of anticipation ahead of US Federal Reserve chair Bernard Bernanke’s testimony in Washington on Wednesday, but there was no drama or fireworks. In his testimony, Bernanke basically served the same menu we’ve seen before with regard to QE. The Fed chief sounded extremely vague when he stated that the Fed bond-buying was “not on a preset course”, leaving the Fed plenty of wiggle room to scale down QE should it choose to do so. Bernanke reiterated that any decision to scale down QE would depend on improving economic conditions. He noted that present unemployment levels (7.6%) were “well above” normal levels, and was careful not to be pinned down by any deadlines for scaling down QE. So, the message from the Fed to the markets seems to be that QE tapering is not on the table before the economy improves and unemployment falls. Bernanke will continue his testimony before a Senate committee on Thursday, and it’s unlikely we’ll hear anything new. The markets reacted cautiously to Bernanke’s testimony, as the US dollar posted modest gains against the major currencies.

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 reiterated that the current outlook of low inflation leaves 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. Chinese Industrial Production dropped from 9.2% to 8.9%, its lowest level since September 2012.

AUD/USD for Thursday, July 18, 2013

AUD/USD July 18 at 13:00 GMT

AUD/USD 0.9173 H: 0.9292 L: 0.9142

AUD/USD Technical

AUD/USD is back to its losing ways after excellent gains on Tuesday. The pair continues to face resistance at 0.9221. This is not a strong line, and could face pressure if the Aussie can reverse direction. This is followed by stronger resistance at 0.9328. On the downside, the pair is receiving weak support at 0.9135. This is followed by a support level at 0.9072.

• Current range: 0.9135 to 0.9221

Further levels in both directions:

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

OANDA’s Open Positions Ratio

AUD/USD ratio continues to show little change continuing the trend which started on Wednesday. We are not seeing this lack of movement in the pair, as AUD/USD has sustained some losses in Thursday trading. The ratio continues to have a substantial majority of long positions, pointing to trader bias in favor of the Australian dollar moving upwards.

The Australian dollar is under pressure as it trades in the mid-0.91 range. The US released a strong Unemployment Claims release, and the Philly Fed Manufacturing Index will be released later today. So we could still see some activity from AUD/USD.

AUD/USD Fundamentals

• 00:00 Australian MI Leading Index. Actual 0.0%.
• 1:30 Australian NAB Quarterly Business Confidence. Actual -1 point.
  12:30 US Unemployment Claims. Estimate 344K. Actual 334K.
• 14:00 US Philly Fed Manufacturing Index. Estimate 8.5 points. Actual 19.8 points.
• 14:00 US CB Leading Index. Estimate 0.3%. Actual 0.0%
• 14:30 US Fed Chairman Bernard Bernanke Speaks. Bernanke will testify before the Senate Banking Committee in Washington.
• 14:30 US Natural Gas Storage. Estimate 63B.

*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.