AUD/USD – Aussie Heads South, Dips Below 70

The Australian dollar has dropped sharply on Thursday, extending its losses for a fourth straight day. In the European session, AUD/USD is trading just below the symbolic line of 0.70. On the release front, Australian Building Approvals dropped by 12.7%, much worse than expectations. Australian Trade Balance also missed the forecast. In the US, today’s key event is Unemployment Claims, with the markets expecting the indicator to drop to 271 thousand. Later in the day, Australia releases Retail Sales, the primary gauge of consumer spending.

The first trading week of 2016 has been dismal for the Australian dollar, which has lost some 300 points against the US dollar, and is trading at its lowest levels since early October 2014. The Aussie has been steamrolled as nervous investors have dumped minor currencies like the Australian dollar in favor of the safe-haven US dollar. The plunge was precipitated by weak Chinese manufacturing data early in the week. Chinese Caixin Manufacturing PMI softened in December, pointing to ongoing contraction in the manufacturing sector. This is bad news indeed for the Australian economy, as China is its largest trading partner. Australian Building Approvals, a key release posted a sharp decline in November, which further weakened the Aussie. Adding fuel to the fire, China has devalued the yuan by over 0.5%, triggering another bout of risk-aversion by investors.

US job data started off 2016 in style, as ADP Nonfarm Payrolls jumped to 257 thousand in December. This crushed the forecast of 193 thousand, and was the strongest gain since June 2014. The ISM Non-Manufacturing PMI came in at 55.3 points, short of the estimate of 56.0 points. Still, this reading points to solid expansion in the services sector and underscores that the US economy is headed in the right direction. The Federal Reserve released the minutes of its December policy meeting, at which it raised rates by 0.25 percent. The minutes were noteworthy in highlighting differences among policymakers as to whether US inflation levels will improve. Indeed, some FOMC members said that their vote in favor of a rate hike was a close call. The Fed has hinted that the December rate is the first of a series of incremental moves in 2016, but inflation levels will play an important role in the timing and size of future rate hikes.

AUD/USD Fundamentals

Wednesday (Jan. 6)

• 19:30 Australian Building Approvals. Estimate -2.8%. Actual -12.7%
• 19:30 Australian Trade Balance. Estimate -2.98B. Actual -2.91B

Thursday (Jan. 7)

• 7:30 US Challenger Job Cuts
• 8:30 US Unemployment Claims. Estimate 271K
• 10:30 US Natural Gas Storage. Estimate -95B
• 17:30 Australian AIG Construction Index
• 19:30 Australian Retail Sales. Estimate 0.4%

Upcoming Key Events

Friday (Jan. 8)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 203K
• 8:30 US Unemployment Rate. Estimate 5.0%

*Key releases are highlighted in bold

*All release times are EST

AUD/USD for Thursday, January 7, 2016

AUD/USD January 7 at 12:00 GMT

AUD/USD 0.6998 H: 07085 L: 0.6983

AUD/USD Technical

• AUD/USD has posted considerable losses in the Asian and European sessions
• 0.7063 has switched to a resistance role as the Aussie continues to lose ground
• 0.6931 is providing support
• Current range: 0.6931 to 0.7063

Further levels in both directions:

• Below: 0.6931, 0.6848 and 0.6754
• Above: 0.7063, 0.7100, 0.7213 and 0.7349

OANDA’s Open Positions Ratio

AUD/USD ratio is showing an slight increase in open long positions, which have a majority of 59%. This is consistent with the sharp losses sustained by AUD/USD, which has led to more open short positions being covered. A majority of long positions is indicative of trader bias towards the pair reversing its sharp slide and moving higher.

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.