AUD/USD – Aussie Rockets After RBA Statement

The Australian dollar has had a splendid day, climbing about 150 points on Tuesday. AUD/USD is trading just above the 0.89 line early in  the North American session. The Aussie took off after the RBA changed its monetary stance to a neutral bias and softened its recent rhetoric about the high value of the Aussie. The RBA held the benchmark interest rate at 2.50%. In the US, today’s highlight is Factory Orders.

On Tuesday, the Reserve Bank of Australia maintained the benchmark interest rate at 2.50%, where it has been pegged since August. This didn’t grab much attention from the markets, but the Rate Statement did. Governor Glenn Stevens noted that interest rates are at an appropriate level, indicating a shift from easing to a neutral stance. He also made a point of noting the Australian dollar’s strong decline, stating that it will “assist in achieving balanced growth” for the Australian economy. Stevens refrained from saying that the Australian dollar was “uncomfortably high” as he has done in the past. The RBA has room to be pleased, as the Aussie has shed 8% of its value in the past three months. However, if the Aussie rebounds and rises into the low-90s, we could see the RBA again attempt to “talk down” the currency.

In the US, ISM Manufacturing PMI, a key event, looked awful in January. The index came in at 51.3 points, a sharp drop from the December reading of 57.0. This was well below the estimate of 56.2 points. The markets will be looking for better news from the ISM Non-Manufacturing PMI on Wednesday. If this index also disappoints, the US dollar could continue to lose ground.

Australian releases started the week on a disappointing note, as Building Approvals declined by 2.9%. This was the fourth decline in five readings, pointing to ongoing contraction in the construction industry. ANZ Job Advertisements, an important employment indicator, posted its fourth straight drop, coming in at -0.3%. There was no relief from Commodity Prices, which declined by 9.9%, a six-month low. However, the Aussie held its own despite the weak numbers on Monday.

In a highly anticipated decision, the Federal Reserve pressed the taper trigger for a second month in a row last week . This reduces its stimulus program (QE) by another $10 billion, lowering the bond-buying scheme to $65 billion each month. Fed chair Bernard Bernanke has indicated that the Fed plans to wind up QE by the end of the year, so we can expect further tapers, barring any surprise downturns in the US economy. Wednesday’s policy statement was Bernard Bernanke’s last hurrah, as Janet Yellen took over as Fed chair on February 1.

AUD/USD for Tuesday, February 4, 2014

AUD/USD February 4 at 13:00 GMT

AUD/USD 0.8891 H: 0.8916 L: 0.8731

AUD/USD Technical

• AUD/USD has posted very strong gains in Tuesday trading. The pair jumped about 150 points in the Asian session but has steadied  in European trading.
• 0.8735 is providing support. This pair has strengthened as the Aussie trades at higher levels. This is followed by support at 0.8658.
• On the upside, 0.8893 is under strong pressure and was breached earlier in the day. It is followed by resistance at the key level of 0.9000.
• Current range: 0.8735 to 0.8893

Further levels in both directions:

• Below: 0.8735, 0.8658, 0.8505, 0.8425 and 0.8363
• Above: 0.8893, 0.9000, 0.9119 and 0.9229

OANDA’s Open Positions Ratio

AUD/USD ratio is almost unchanged in Tuesday trading. This is not consistent with what we are seeing from the pair, as the Australian dollar has posted sharp gains against the US currency. AUD/USD ratio is made up of a substantial majority of long positions, reflecting a trader bias towards the Australian dollar continuing to move higher against the US currency.

The Australian dollar has enjoyed sharp gains in Tuesday trading. Most of the upward movement took place in the Asian session and the pair has steadied in European trading. We could see the pair move above the 0.89 line during the day.

AUD/USD Fundamentals

• 3:30 RBA Cash Rate. Estimate 2.50%. Actual 2.50%.
• 3:30 RBA Rate Statement.
• 15:00 US Factory Orders. Estimate -1.9%.
• 15:00 US IBD/TIPP Economic Optimism. Estimate 46.1 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.