AUD/USD – Aussie Dips as Wage Growth Misses Estimate

The Australian dollar has posted losses on Wednesday. In the North American session, AUD/USD is trading at 0.7260. On the release front, Australian Wage Price Index posted a gain of 0.4%, below the forecast of 0.5%. All eyes are on the Federal Reserve, which will release the minutes of its April policy meeting. As well, the US will release Crude Oil Inventories, with the markets expecting a sharp decline of 3.4 million barrels. On Thursday the US will release Unemployment Claims and the Philly Fed Manufacturing Index.

Earlier this week, 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 we see another move from the RBA in the summer? 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, falling 360 points. Much of that slide can be attributed to the RBA’s rate cut and dovish tone, and the Aussie could continue to drop as the markets eye further interest 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, especially after the weak Nonfarm Payrolls report earlier this month. 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. The Fed insists that June will be a “live meeting”, meaning that it will carefully weigh the possibility of a rate hike. The markets don’t seem to be buying into this message, clearly expecting rates to remain at the current level of 0.25%, with the implied probability of a hike down to just 4%. The upcoming minutes could provide some insight as to whether the Fed is considering a move at the June meeting.

AUD/USD Fundamentals

Tuesday (May 17)

  • 21:30 Australian Wage Price Index. Estimate 0.5%. Actual 0.4%

Wednesday (May 18)

  • 10:30 US Crude Oil Inventories. Estimate -3.1M
  • 14:00 US FOMC Meeting Minutes
  • 21:30 Australian Employment Change. Estimate 12.1K
  • 21:30 Australian Unemployment Rate. Estimate 5.8%

Upcoming Key Events

Thursday (May 19)

  • 8:30 US Philly Fed Manufacturing Index. Estimate 3.2
  • 8:30 US Unemployment Claims. Estimate 276K

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Wednesday, May 18, 2016

AUD/USD May 18 at 9:40 EDT

Open: 0.7316 Low: 0.7254 High: 0.7318 Close: 0.7257

AUD/USD Technical

S3 S2 S1 R1 R2 R3
0.7049 0.7160 0.7251 0.7339 0.7472 0.7560
  • AUD/USD posted losses in the Asian and European sessions. The pair remains under pressure in North American trade.
  • 0.7251 is under pressure in support as the AUD/USD has posted losses on Wednesday
  • There is resistance at 0.7339
  • Current range: 0.7251 to 0.7339

Further levels in both directions:

  • Below: 0.7251, 0.7160 and 0.7049
  • Above: 0.7339, 0.7472, 0.7560 and 0.7678

OANDA’s Open Positions Ratio

AUD/USD ratio is unchanged on Wednesday. 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

Market Analyst at OANDA
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, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.