AUD/USD – Aussie Improves Following Strong CPI

The Australian dollar is fighting back after sharp losses last week. The currency has gained close to a cent this week against the US dollar, as AUD/USD trades in the mid-0.88 range early in the North American session. The Aussie got a boost from CPI, which beat the estimate. It’s another quiet day in the US, with no releases scheduled until Thursday. Meanwhile, the World Economic Forum has kicked off in Davos, Switzerland.    

Australian inflation indicators looked strong on Wednesday. CPI, a key event, posted a gain of 0.8% in December. This was a drop from the 1.2% gain a month earlier, but well above the market estimate of 0.5%. Trimmed Mean CPI, which excludes the most volatile items purchased by consumers, came in at 0.9%, up from 0.7% in November. The indicator beat the estimate of 0.6%. The better- than-expected releases helped the Aussie move higher in Wednesday trading.

The World Economic Forum kicks off Wednesday in Davos, Switzerland. The prestigious event will see senior political officials, head of foreign banks and business people from dozens of countries meet and mingle. Traders should note that currency markets can be affected by statements issued at the forum, particularly those made by central bankers or other senior officials.

Weak inflation concerns are not restricted to Europe or Japan, as the US has also been plagued by persistently low inflation, an indication of an underperforming economy. This was underscored by Core CPI, which posted a weak gain of just 0.1% in December. Producer Price Index posted a gain of 0.4%, reversing directions after three consecutive declines. Last week, Chicago Fed President Charles Evans said that the low rate of U.S. inflation is “both puzzling and worrisome,” and enough reason to maintain low interest rates, even if the employment picture continues to brighten. Analysts will be watching closely whether incoming Fed chair Janet Yellen shares these sentiments. Yellen takes over the helm of the Federal Reserve on February 1, replacing Bernard Bernanke.

AUD/USD for Wednesday, January 22, 2014

AUD/USD January 22 at 14:40 GMT

AUD/USD 0.8862 H: 0.8888 L: 0.8788

AUD/USD Technical

• AUD/USD has posted gains in Wednesday trading. The pair touched a high of 0.8888 early in the European session.
• 0.8735 continues to provide support. This line has some breathing room as the Australian dollar trades at higher levels. This is followed by support at 0.8658, which has remained intact since July 2010.
• 0.8893 is the next resistance line. It is followed by resistance at the round number of 0.9000.
• Current range: 0.8735 to 0.8893

Further levels in both directions:

• Below: 0.8735, 0.8658, 0.8505 and 0.8425
• Above: 0.8893, 0.9000, 0.9119, 0.9229 and 0.9305

OANDA’s Open Positions Ratio

AUD/USD continues to point to gains in short positions. This is not consistent with what we are seeing from the pair, as the Australian dollar has moved higher. AUD/USD is made up of a substantial majority of long positions, reflecting a trader bias towards the Australian dollar continuing to post gains against the US currency.

The Australian dollar has improved in Wednesday trading. Early in the North American session, the pair is steady in the mid-0.88 range.

AUD/USD Fundamentals

• oo:30 Australian CPI. Estimate 0.5%. Actual 0.8%
• oo:30 Australian Trimmed Mean CPI. Estimate 0.6%. Actual 0.9%

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.