AUD/USD – Aussie Climbs as Markets Expect UK to Stay in Europe

The Australian dollar has posted strong gains on Thursday, continuing the upward trend seen in the Wednesday session. AUD/USD is trading slightly below the 0.76 line in North American trade. The markets are anxiously waiting for the results of the Brexit referendum in the UK. On the release front, US unemployment claims slipped to 259 thousand, well below expectations. However, New Homes Sales dropped to 551 thousand, well short of the forecast. There are no economic releases out of Australia on the schedule. RBA Assistant Governor Guy Debelle will deliver remarks at an event in Sydney.

All eyes are nervously following the Brexit vote in the UK. After a bitter and hard-fought campaign, millions of Britons are voting on whether the country remains in the EU or exits from the bloc. Most polls continue to show a neck-and-neck race between the Remain and Leave camps, so undecided voters will likely swing the vote and determine the final outcome. However, there is clearly a discrepancy between the polls and the market mood, as market sentiment continues to lean towards a victory by the Remain camp. This sentiment has boosted the pound, which briefly broke above 1.49 on Thursday and is trading at its highest level in 2016. The Remain camp has warned that a vote to leave the EU would damage the UK economy, while the “Leave” vote has tapped into voter dissatisfaction with Brussels, particularly concerning immigration and over-regulation by the EU. The economic stakes are massive, as the UK economy of GBP 2.9 trillion is the fifth largest in the world and number two in Europe, after Germany. A vote to leave the comfort zone of the EU would be a journey into the unknown, with unpredictable economic and political consequences for both the UK and the European Union. If the Remain camp wins, investors would feel more comfortable buying risky assets, such as the Australian dollar.

As expected, Janet Yellen did not provide any clues about a rate hike in her testimony before Congress this week. She acknowledged that the US economy could face some adversity, saying that “[c]onsiderable uncertainty about the economic outlook remains”. Yellen said that she’s “hopeful that we will see a pickup in growth”, but skeptics might respond that the markets want to see action from the Fed and not just hope. The Fed has clearly been out of sync with the markets, as underscored by the Fed’s statements back in December that it might raise rates in 2016 up to four times. Meanwhile, here we are in June, and there’s no clear indication that the Fed will raise rates at all this year. In her testimony, Yellen said she does not expect the US economy to enter a recession, but if such a scenario did occur, the US would not follow Japan and Europe and adopt negative interest rates. On a more positive note, Yellen said that weak oil prices, low interest rates and stronger wage growth should support consumer spending.

The Australian dollar has posted gains this week, boosted by the RBA minutes which were upbeat in tone. In the minutes, policymakers said that stronger economic data and a weaker Australian dollar had allowed the RBA to stay on the sidelines and maintain the benchmark rate at 1.75%. Will the RBA lower rates in the next few months? Australia’s economy has shown signs of improvement recently, as GDP grew an impressive 3.1% in Q1 year-on-year, its strongest gain in three years. The labor market looked solid in May, as Employment Change improved to 17.9 thousand, beating the estimate of 14.9 thousand. Recently, the RBA was sending strong hints that it was planning to lower rates, but the stronger economy has given it some room to maintain current rate levels. The RBA will hold a policy meeting on July 5, but is unlikely to take any action, as the meeting takes place just days after the national election.

Thursday (June 23)

• 8:30 US Unemployment Claims. Estimate 271K. Actual 259K
• 9:45 US Flash Manufacturing PMI. Estimate 50.5. Actual 51.4
• 10:00 US New Home Sales. Estimate 561K. Actual 551K
• 10:00 US CB Leading Index. Estimate 0.2%. Actual -0.2%
• 10:30 US Natural Gas Storage. Estimate 59B. Actual 62B

Upcoming Key Events

Friday (June 24)

• 8:30 US Core Durable Goods Orders. Estimate 0.1%

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Thursday, June 23, 2016

AUD/USD June 23 at 10:35 EDT

Open: 0.7509 Low: 0.7509 High: 0.7597 Close: 0.7579

AUD/USD Technical

• AUD/USD was flat in the Asian session and posted gains in European trade. The pair is steady in North American trade
• 0.7472 has strengthened in support as AUD/USD has posted gains on Thursday
• 0.7612 is a weak resistance line and could be tested in the North American session
• Current range: 0.7472 to 0.7612

Further levels in both directions:

• Below: 0.7472, 0.7339, 0.7251 and 0.7160
• Above: 0.7612, 0.7739 and 0.7835

OANDA’s Open Positions Ratio

AUD/USD ratio is showing gains in short positions on Thursday, continuing the trend we saw on Wednesday. This is consistent with AUD/USD continuing to move higher. Long positions have a majority (54%), indicative of trader bias towards AUD/USD continuing to gain ground.

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.