AUD/USD – Aussie Steady, Markets Eye Trade Balance and Retail Sales

The Australian dollar is showing limited movement on Wednesday, following sharp losses in the Tuesday session. AUD/USD is trading at the 0.75 line in the European session. In economic news, there are a host of key releases out of Australia and the US. Australia will release Trade Balance and Retail Sales, while the US publishes ADP Nonfarm Employment Change and the ISM Non-Manufacturing PMI.

The Australian dollar lost 160 points on Tuesday, responding sharply to the RBA decision to cut interest rates. The RBA surprised the markets with a quarter point cut, lowering rates from 2.00% to 1.75%. Although the central bank has consistently sent out the message that it would not hesitate to lower rates if warranted by economic conditions, it was clearly reluctant to act and held rates at 2.00% for 10 months before this week’s dramatic move. What was the catalyst for the RBA’s change of heart? Until last week, the markets were expecting the RBA to remain on the sidelines, but a decline of -0.2% in first quarter CPI proved to be a game-changer and prodded the RBA into action. Negative inflation numbers, part of the economic landscape of the US, Japanese and Eurozone economies, have reached Australia as well, as RBA Governor Glenn Stevens stated that the RBA was forced to react to soft inflation numbers. As well, the central bank has often expressed its concern about the high value of the Australian dollar, which has hurt the critical export market. A rate cut presented the RBA with the added benefit of weakening the Australian currency. With an Australian election expected in July, the RBA may hold off from any further action until after the political picture becomes clear.

The market will be treated to key US employment numbers, starting with the release of ADP Nonfarm Payrolls on Wednesday. This will be followed by Unemployment Claims and the all-important Nonfarm Payrolls later in the week. The employment picture has been a bright spot in the US economy, as unemployment remains at very low levels and Nonfarm Payrolls have been above the 200-thousand threshold. Despite the robust labor market, however, consumer confidence and spending has not kept pace. Last week, UoM Consumer Sentiment dipped to 89.0 points short of the estimate of 90.3 points. This also marked the fourth straight drop for the key indicator. Consumer spending is a key engine of economic activity, and softer numbers in the first quarter were an important reason that US GDP weakened in the first quarter, with a lukewarm reading of 0.5%

AUD/USD Fundamentals

Wednesday (May 4)

• 8:15 US ADP Nonfarm Employment Change. Estimate 205K
• 8:30 US Preliminary Nonfarm Productivity. Estimate -1.3%
• 8:30 US Preliminary Unit Labor Costs. Estimate 2.9%
• 8:30 US Trade Balance. Estimate -45.6B
• 9:45 US Final Services. Estimate 52.1
• 10:00 US ISM Non-Manufacturing PMI. Estimate 54.9
• 10:00 US Factory Orders. Estimate 0.7%
• 10:30 US Crude Oil Inventories. Estimate 0.6M
• 21:00 Australian New Home Sales
• 21:30 Australian Retail Sales. Estimate 0.3%
• 21:3o Australian Trade Balance. Estimate -2.95B

Upcoming Key Events

Thursday (May 5)

• 8:30 US Unemployment Claims. Estimate 261K
• 21:30 RBA Monetary Policy Statement

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Wednesday, May 4, 2016

AUD/USD May 4 at 5:10 EDT

Open: 0.7498 Low: 0.7518 High: 0.7468  Close: 0.7497

AUD/USD Technical

• AUD/USD has shown limited movement in the Asian and European sessions
• 0.7560 switched to a resistance role following sharp losses by AUD/USD on Tuesday
• 0.7472 was tested earlier in support. It could break during the day
• Current range: 0.7472 to 0.7560

Further levels in both directions:

• Below: 0.7472, 0.7339 and 0.7251
• Above: 0.7560, 0.7678, 0.7796 and 0.7913

OANDA’s Open Positions Ratio

AUD/USD ratio is showing little movement on Wednesday, consistent with the lack of movement from AUD/USD. Long and short positions remain close to an even split, indicative of a lack of trader bias as to what direction AUD/USD will take next.

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.