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Aussie Edges Higher, US Consumer Inflation Improves

The Australian dollar has posted slight gains on Tuesday. Early in the North American session, AUD/USD is trading slightly above the 0.73 line. On the release front, the RBA released the minutes of its May policy meeting. Australian Motor Vehicle Sales dropped 2.5% in April, compared to a 2.2% gain in the previous release. In the US, Core CPI posted a small gain of 0.2%, while CPI improved to 0.4%. Both readings were within expectations. Building Permits came in at 1.12 million, very close to the forecast. Later in the day, Australia will release Wage Price Index, an important employment indicator. On Wednesday, the Federal Reserve releases the minutes of its April policy meeting. Australia will publish Employment Change and the Unemployment Rate.

The RBA released the minutes of its May policy meeting, when it surprised the markets and lowered interest rates from 2.00% to 1.75%. The minutes indicated that the deflationary trend could continue. In March, CPI dipped 0.2%, and this weak number played a factor in the RBA’s decision to lower rates earlier this month. In the minutes, the RBA also expressed concern about weak wage growth. Will the RBA press the rate trigger shortly? With a national election scheduled for July 2, the RBA is unlikely to make any monetary moves until August. The markets are expecting more cuts in 2016, but it’s an open question as to how deep the RBA could cut rates. Analysts at Commonwealth Bank expect two quarter-point cuts, which would lower rates to 1.25% by the end of 2016. JP Morgan, however, says that rates could fall to 1.0% by the end of the year. The Australian dollar has looked dreadful in May, losing over 300 points. Much of that drop can be attributed to the RBA’s rate cut and dovish tone, and the minutes will put even more pressure on the Australian dollar as the markets prepare for further rate cuts.

The Federal Reserve, never far from the financial headlines, will take over center stage on Wednesday with the release of the April minutes. The Fed has sent out the message that a June hike is on the table, but the markets remain skeptical, following the soft Nonfarm Payrolls report earlier this month and Tuesday’s weak consumer inflation reports. With the economy showing mixed employment numbers and inflation stuck at low levels, a June hike would be nothing less than a shock, a reason in itself for the Fed to remain on the sidelines and avoid causing market turbulence. The markets are clearly expecting rates to remain at the current level of 0.25%, with the implied probability of a hike down to just 4% [1].

The US economy remains generally solid and last week wrapped up on a high note, as retail sales and consumer confidence reports beat expectations. Core Retail Sales posted a strong gain of 0.8%, above the estimate of 0.6%. Retail Sales surged 1.3%, its strongest gain in over six years. The gain was all the more impressive as the markets had anticipated a decline of 0.3%. Consumer confidence also looked sharp, as UoM Consumer Sentiment jumped to 95.8 points, compared to the estimate of 89.9 points.

AUD/USD Fundamentals

Monday (May 16)

Tuesday (May 17)

Upcoming Key Events

Wednesday (May 18)

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Tuesday, May 17, 2016

AUD/USD May 17 at 9:20 EDT

Open: 0.7286 Low: 0.7282 High: 0.7366 Close: 0.7326

AUD/USD Technical

S3 S2 S1 R1 R2 R3
0.7049 0.7160 0.7251 0.7339 0.7472 0.7560

Further levels in both directions:

OANDA’s Open Positions Ratio

AUD/USD ratio has shown movement towards long positions on Tuesday. Long positions command a strong majority (61%), indicative of trader bias towards AUD/USD continuing to move 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.

Kenny Fisher

Kenny Fisher [5]

Market Analyst at OANDA [6]
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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