The Australian dollar has dropped over 100 points on Friday, as AUD/USD trades at 0.7360 in the European session. On the release front, the RBA lowered its inflation forecast. The Australian Construction Index was surprisingly strong, climbing to 50.8 points. This marked the first time that the indicator has pointed to expansion in five months. In the US, Nonfarm Payrolls plunged in April, falling to 160 thousand, compared to the estimate of 203 thousand.
The Australian dollar dropped sharply on Friday, in response to the RBA policy statement in which it lowered its inflation forecast. In the statement, the RBA projected inflation levels between 1 and 2 percent in 2016, and then from 1.5 percent to 2.5 percent through mid-2018. In its February statement, the RBA had predicted inflation running between 2 percent and 3 percent, which is the central bank’s official inflation target. This points to serious concern on the part of the RBA regarding the inflation picture, and many analysts expect another 0.25% rate cut in August, which would lower rates to 1.50%. 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 the RBA responded with a surprise quarter point cut, lowering rates from 2.00% to 1.75%. In addition to the inflation problem, 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 is expected to hold off from any further monetary moves until August.
What does the Federal Reserve have planned for the rest of 2016? In the April policy statement, the Fed didn’t raise rates, but the message to the markets with regard to the US economy was one of cautious optimism. The statement noted continuing improvement in the labor market but added that it was keeping a watchful eye on low inflation levels. Fed policymakers are projecting two or even rate hikes in 2016, and have left the door open to a June hike. With the US releasing key employment numbers on Friday, the markets will be listening closely to the reaction of Fed policymakers, looking for clues regarding the next rate hike.
Thursday (May 5)
- 23:30 Australian Construction Index. Actual 50.8
Friday (May 6)
- 1:30 RBA Monetary Policy Statement
- 8:30 US Average Hourly Earnings. Estimate 0.3%. Actual 0.3%
- 8:30 US Nonfarm Employment Change. Estimate 203K. Actual 160K
- 8:30 US Unemployment Rate. Estimate 5.0%. Actual 5.0%
- 21:30 RBA Monetary Policy Statement
*Key releases are highlighted in bold
*All release times are EDT
AUD/USD for Friday, May 6, 2016
AUD/USD May 6 at 8:30 EDT
Open: 0.7476 Low: 0.7358 High: 0.7476 Close: 0.7365
- AUD/USD has posted sharp losses in the Asian session. The pair is showing little movement in European trade
- 0.7339 has weakened in support following sharp losses by AUD/USD in the Friday session
- There is resistance at 0.7472
- Current range: 0.7339 to 0.7472
Further levels in both directions:
- Below: 0.7339, 0.7251 and 0.7160
- Above: 0.7472, 0.7560, 0.7678 and 0.7796
OANDA’s Open Positions Ratio
AUD/USD ratio has shown some movement towards long positions on Friday, consistent with the sharp losses sustained by AUD/USD. Long positions have a slight majority (53%), indicative of trader bias towards AUD/USD reversing directions and climbing higher.