AUD/USD – Aussie Loses Ground as Chinese PMI Falters

The Australian dollar is under pressure on Wednesday, as the currency struggles to stay above the 0.92 level in the European session. In economic news, Australian CPI posted a second straight gain of 0.4%. This was just shy of the estimate of 0.5%. The Trimmed Mean CPI posted a gain of 0.5%, matching the estimate. Chinese Flash Manufacturing PMI continues to fall, and missed the estimate. On Tuesday, US releases looked weak. HPI came in at 0.7%, missing the estimate of 0.9%. The Richmond Manufacturing Index was a disaster, dropping to a six-month low.

The Aussie is sensitive to key Chinese releases, as China is Australia’s number one trading partner. On Tuesday, Chinese Flash Manufacturing PMI posted a lower reading for the third consecutive month. The indicator has not been above the 50 level since April, pointing to ongoing contraction in the Chinese manufacturing sector. The index dropped from 48.3 to 47.7 points, well below the estimate of 48.6 points.

US releases have not looked good so far this week. Existing Home Sales slid from 5.18 million to 5.08 million. Clearly, the markets were expecting too much, with an estimate of 5.27 million. The markets will be hoping for better news from New Home Sales on Wednesday. This indicator has now improved for the past three consecutive releases. The housing industry is a vital component of economic growth, and both of these housing releases are market-movers. On Tuesday, the Richmond Manufacturing Index plunged from +8 points to -11 points, its worst reading since September 2012. Last week, the Empire State Manufacturing Index and Philly Fed Manufacturing Index looked sharp, and the markets had expected the Richmond Manufacturing Index to follow suit. The weak figure is an indication that the manufacturing sector, which has been a sore spot in the US recovery, continues to show weakness.

The question of when the Fed will pull the trigger on QE tapering continues to preoccupy the markets. Despite the zigzagging we’ve seen on this issue from the Fed, there is a strong likelihood that this will take place before the end of 2013, barring a major downturn by the US economy. There is speculation that the Fed could take action in September. Appearing on Capitol Hill last week, Fed chair Bernard Bernanke was careful not to get pinned down with any specific deadlines, and instead said that stronger growth and lower unemployment were the key factors to any action over QE. The problem with this approach is the markets remain in the dark, and every strong US release fuels expectation about QE tapering, while a weak release does the opposite. This of course, contributes to market instability, as we’ve seen in recent months with the US dollar. The G20 seemed to have this issue in mind when it issued a statement that member countries had agreed that future monetary policy moves would be “carefully calibrated and clearly communicated”. Whether the Fed will suddenly show its cards is doubtful, especially in light of Bernanke’s vague and rather dull performance in front of Congress last week.

AUD/USD for Wednesday, July 24, 2013

AUD/USD July 24 at 12:45 GMT

AUD/USD 0.9211 H: 0.9318 L: 0.9190

AUD/USD Technical

AUD/USD has broken out of the narrow range trading we saw on Tuesday, as the Australian dollar has lost ground in Wednesday trading, trading slightly above the 0.92 line. The pair faces resistance at 0.9221. This is a weak line, and could break if the Aussie shows any improvement. This is followed by stronger resistance at 0.9328. On the downside, 0.9135 is the next support level as the pair has moved to lower ground. 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 has reversed directions in Wednesday trading, pointing to movement towards long positions. This is not reflected in what we are seeing from the pair, as the Aussie has lost ground. 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  broken out from the range trading we saw on Tuesday. The Aussie has lost some ground after Australian CPI disappointed and Chinese manufacturing data weakened. We could continue to see activity from the pair during the day, as the US releases New Home Sales, a key event.

AUD/USD Fundamentals

• 1:30 Australian CPI. Estimate 0.5%. Actual 0.5%.
• 1:30 Australian Trimmed Mean CPI. Estimate 0.5%. Actual 0.5%.
• 1:45 Chinese Flash Manufacturing PMI. Estimate 48.6 points. Actual 47.7 points.
• 13:00 US Flash Manufacturing PMI. Estimate 52.5 points.
• 14:00 US New Home Sales. Estimate 482K.
• 14:30 US Crude Oil Inventories. Estimate -2.5M.

*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.