AUD/USD – Aussie Under Pressure as Inflation Weakens

AUD/USD continues to lose ground on Friday, as the pair trades in the high 0.93-range in the European session. The struggling Australian dollar has surrendered over 100 points this week and is trading at its lowest level since early June. On the release front, Australian PPI posted a decline of 0.1%. In the US, the markets will have plenty of data to sort through, with three key events later in the day – Nonfarm Employment Change, Unemployment Rate and ISM Manufacturing PMI. We’ll also get a look at consumer confidence levels, with the release of UoM Consumer Sentiment.

The Australian Producer Price Index is a key gauge of inflation in the manufacturing sector. The index disappointed in the second quarter, coming in at -0.1%. This was nowhere near the estimate of +0.7%, and marked a two-year low. PPI followed a weak reading from Building Approvals, which plunged 5.5% last month. If key data out of Australia continues to decline, the Aussie will be hard pressed to reverse its downward spiral.

On Thursday, Unemployment Claims came in at 302 thousand, higher than the previous release but very close to the estimate of 303 thousand. Earlier in the week, ADP Nonfarm Payrolls posted a sharp drop. If the official NFP release follows suit and misses the estimate of 234 thousand, the US dollar could give up some if its recent gains. Meanwhile, US GDP exceeded expectations in the second quarter, as the economy expanded at an annual rate of 4.0%. This easily beat the estimate of 3.1% and marked the strongest quarter of economic growth since Q4 of 2009. The boost in economic activity was helped by strong consumer confidence and business investment, as well as solid employment data. The US dollar took advantage of the strong numbers, posting gains against its major rivals, including the Australian dollar.

The Federal Reserve released a policy statement on Wednesday, with the Fed sounding somewhat dovish in tone. Policymakers acknowledged lower unemployment levels, but noted that “there remains significant underutilization of labor resources” in the economy. The Fed statement reinforces the view that the US central bank is in no rush to raise interest rates after the termination of QE, which is expected in October. As well, the Fed said that inflation levels have moved somewhat closer to the Fed’s target of 2.0%.

AUD/USD for Friday, August 1, 2014

AUD/USD August 1 at 10:15 GMT

AUD/USD 0.9279 H: 0.9317 L: 0.9276

AUD/USD Technical

• AUD/USD stayed close to the 0.93 line for most of the Asian session. The pair edged lower late in the session and is trading around 0.9280 in the European session.
• 0.9229 continues to provide support.
• 0.9361 is the next resistance line.
• Current range: 0.9229 to 0.9361

Further levels in both directions:

• Below: 0.9229, 0.9119 and 0.9020
• Above: 0.9361, 0.9446, 0.9617 and 0.9757

OANDA’s Open Positions Ratio

AUD/USD ratio is pointing to gains in long positions on Friday, continuing in the direction seen a day earlier. This is not consistent with the movement of the pair, as the Australian dollar continues to post losses. The ratio has a majority of long positions, indicative of trader bias towards the Australian dollar moving higher.

AUD/USD Fundamentals

• 1:30 Australian PPI. Estimate -0.1%. Actual 0.7%.
• 6:30 Australian Commodity Prices. Actual -12.1%.
• 12:30 US Nonfarm Employment Change. Estimate 231K.
• 12:30 US Unemployment Rate. Estimate 6.1%.
• 12:30 US Average Hourly Earnings. Estimate 0.2%.
• 12:30 US Core PCE Price Index. Estimate 0.2%.
• 12:30 US Personal Spending. Estimate 0.5%.
• 12:30 US Personal Income. Estimate 0.4%.
• 13:45 US Final Manufacturing PMI. Estimate 56.3 points.
• 13:55 US Revised UoM Consumer Sentiment. Estimate 81.5 points.
• 13:55 US Revised UoM Inflation Expectations.
• 14:00 US ISM Manufacturing PMI. Estimate 56.1 points.
• 14:00 US Construction Spending. Estimate 0.4%.
• 14:00 US ISM Manufacturing Prices. Estimate 58.6 points.
• All Day – US Total Vehicle Sales. Estimate 16.8M.

* 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.