AUD/USD – Little Reaction to Bernanke Testimony

AUD/USD has edged upwards in the Friday session, trading in the low-0.92 range in European trading. The Australian dollar did not show much reaction to remarks by US Federal Reserve chair Ben Bernanke, who testified before Congress on Wednesday and Thursday. Bernanke didn’t really say anything new, as he stated that the Fed’s monetary policy would remain accommodative and QE tapering would not begin until the US economy showed further improvement. Meanwhile, there were two excellent releases out of the US on Thursday. Unemployment Claims dropped and came in below the estimate, while the Philly Fed Manufacturing Index jumped to its highest level in over two years. Moscow is hosting a G20 meeting of finance ministers and central bankers on Friday and Saturday. As for economic releases, it’s a very quiet end to the trading week, with no data out of the US or Australia on Friday.

There was eager anticipation in the markets ahead of US Federal Reserve chair Bernard Bernanke’s testimony in Washington on Wednesday and Thursday, but in the end, Bernanke’s appearance could be characterized as a disappointment. The Fed chair had nothing new to add as he basically served the same menu we’ve seen before with regard to QE and monetary policy. 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’s testimony did not cause much market volatility, in contrast to recent statements by the Fed about QE, which sent the dollar sharply lower.

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 meeting, 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. Meanwhile, this week’s major Australian releases disappointed. CBV Leading Index dropped from 0.3% to 0.0, its lowest reading since February. There was also bad news from the NAB Quarterly Business Confidence, which dropped from 2 points to -1 point. This indicator has been below the zero level for five of the past six quarters, indicating a low level of business confidence in the economy. The Aussie will have a tough time trying to make up ground against the US dollar if domestic economic releases don’t point upwards.

Recent numbers point to lower growth in China, and this is weighing on the Australian dollar. 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 Friday, July 19, 2013

AUD/USD July 19 at 11:25 GMT

AUD/USD 0.9214 H: 0.9235 L: 0.9156

AUD/USD Technical

AUD/USD has edged up in Friday trading, and pushed above the 0.92 line in the Asian session. The proximate support and resistance levels remain in place (S1 and R1 above) . The pair continues to face resistance at 0.9221. This is a weak line, and is currently under pressure from the pair. This is followed by stronger resistance at 0.9328. On the downside, the pair is receiving support at 0.9135. This line has some breathing room as AUD/USD trades above the 0.92 level. 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 is back in action after little activity for most of the week. The ratio is showing movement towards long positions. This is reflected in the pair’s movement, as the Aussie has posted modest gains against the US dollar. 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 has moved higher, as it trades above the 0.92 line. The Aussie did not show much reaction to Bernanke, and held its own after the US released strong employment and manufacturing numbers on Thursday. There are no releases out of the US or Australia on Friday, so we can expect AUD/USD to remain close to the 0.92 line during the day.

AUD/USD Fundamentals

• Day 1 of G20 Meeting in Moscow

*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.