AUD/USD – Slight Gains as RBA Keeps Door Open to Rate Cuts

AUD/USD has posted modest gains against the US dollar in Tuesday trading. The pair is trading in the mid-0.93 range in the European session. Earlier, minutes of the RBA’s last policy meeting indicated that the RBA has not ruled out further interest rate cuts, but has no imminent plans to target interest rates. New Motor Vehicles Sales rebounded nicely from a sharp decline in July, posting a gain of 0.8% in August. In the US, Empire State Manufacturing Index looked awful on Monday, posting a sharp drop for the August release. The markets will be looking for US releases to get back on track later on Tuesday, with the release of US Core CPI.

The RBA released the minutes of its most recent policy meeting, and left room for future interest rate cuts. At the meeting, the RBA kept the benchmark interest rate steady at 2.50%. The minutes stated that “members agreed that the bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them”. In plain English – no rate moves for now, but that could change. The RBA has indicated that it would prefer a cheaper Australian dollar, which could concern investors and weigh on the currency.

This week’s highlight is the FOMC Statement, scheduled for release on Wednesday, when the Federal Reserve concludes its two-day policy meeting. The markets have been speculating about QE tapering for months, and we could see the Fed take action in the upcoming statement. However, there is a stronger likelihood that QE tapering will not begin till later in the year, as US economic releases, particularly employment data, could be stronger. Traders should be prepared for some volatility from AUD/USD once the FOMC Statement is released.

What’s ailing the US economy? UoM Consumer Sentiment ended a mostly disappointing week on a sour note. The key indicator dropped from 80.0 points in July to 76.8 in August, its lowest level since March. This weak figure comes on the heels of weak US retail sales releases on Thursday. The new week didn’t start out much better, as Empire State Manufacturing Index, an important release, posted another sharp drop in August. The indicator fell from 8.2 points to 6.3 points. This was way off the estimate of 9.2 points. The markets are hoping that the US can get back on track on Tuesday, with the release of Core CPI, a key event.

Bernard Bernanke will step down as head of the US Federal Reserve at the end of January, and the race to replace Bernanke has taken a dramatic twist. Former Treasury Secretary Lawrence Summers was considered the leading contender for the prestigious position. Surprisingly, Summers has withdrawn his nomination, leaving Vice Chairman Janet Yellen as the favored candidate. Yellen is considered dovish and may be hesitant when it comes to QE tapering. The dollar responded to the news of Summers’ withdrawal by losing ground against the major currencies.

AUD/USD for Tuesday, September 17, 2013

AUD/USD 0.9353 H: 0.9356 L: 0.9286

AUD/USD Technical

• AUD/USD is steady in Tuesday trading. The pair pushed above the 0.93 line in the Asian session, and has moved higher in European trading.
• The pair continues to face resistance at the round number of 0.9400. This line could face pressure if the Aussie gains ground. This is followed by resistance at 0.9508. This line has remained in place since June.
• On the downside, the pair is receiving weak support at 0.9328. This is followed by stronger support at 0.9221.
• Current range: 0.9328 to 0.9400

Further levels in both directions:

• Below: 0.9328, 0.9221, 0.9135, 0.9089 and 0.9000
• Above: 0.9400, 0.9508, 0.9613 and 0.9700

OANDA’s Open Positions Ratio

AUD/USD ratio is unchanged in Tuesday trading. This is not reflective of what we are currently seeing from the pair, as the Aussie continues to point higher. Long positions retain a sizeable majority, indicative of strong trader sentiment towards the pair continuing to move to higher ground.

The Australian dollar continues to look sharp, and has gained over four cents against the greenback in September. The US releases key inflation data later in the day, and we could see more movement from the pair if the reading surprises the markets.

AUD/USD Fundamentals

• 1:30 RBA Monetary Policy Meeting Minutes.
• 1:30 Australian New Motor Vehicle Sales. Actual 0.8%.
• 12:15 US Treasury Secretary Jack Lew Speaks.
• 12:30 US Core CPI. Estimate 0.1%.
• 12:30 US CPI. Estimate 0.2%.
• 13:00 US TIC Long-Term Purchases. Estimate -45.3B.
• 14:00 US NAHB  Housing Market Index. Estimate 59 points.

*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.