AUD/USD – Aussie Jumps on Strong NAB Business Confidence Report

The Australian dollar has posted strong gains on Tuesday, as AUD/USD is trading above the 0.76 line in the North American session. In economic news, the NAB Business Confidence survey came in at plus-6, marking a 3-month high. In the US, JOLT Job Openings dropped to 5.50 million, well below the estimate of 5.74 million. Wholesale Inventories dropped to 0.1% in May, compared to 0.6% a month earlier.  On Wednesday, Australia will release Westpac Consumer Sentiment.

The NAB Business Confidence survey impressed in June, climbing to plus-6. The strong reading surprised many experts, as the global economy is weak and the Brexit shocker sent the financial markets into chaos. Strong business confidence could point to improved economic growth in the second quarter, which would be bullish for the Australian dollar. The currency responded positively to the NAB survey, gaining close to 100 points on Tuesday. AUD/USD is currently above the 0.76 line, its highest level since the Brexit vote in last June.

The recent election in Australia was unusually close and the country was in political limbo for over a week. However, on Sunday, Prime Minister Malcolm Turnbull declared victory and is expected to form a government with a slim majority. The election uncertainty took its toll last week, as Standard & Poor’s downgraded the outlook on Australia’s AAA credit rating from stable to negative. The credit agency cited lingering uncertainty over the inconclusive Australian election, and warned that the country’s credit rating was in jeopardy if Australia didn’t get its fiscal house in order. On Monday, the Moody’s credit agency weighed in as well, stating that it “expects fiscal consolidation to remain a key policy objective of the government”. Turnbull will have to act quickly to restore confidence in the Australian economy and convince international investors that the country is headed on the right path.

The Federal Reserve hasn’t strayed from the sidelines in the first half of 2016, and the markets aren’t expecting a dramatic shift anytime soon. However, if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike will certainly increase. Last week’s minutes from the June policy meeting indicated that Janet Yellen & Co. remain cautious about the strength of the US economy. Although some Fed members have said that rates could be raised up to two times in 2016, clearly the markets aren’t buying it. Given the current economic climate, the markets are pessimistic about any rates moves before 2017. Investors have priced in no chance of a rate increase at the next Fed meeting on July 26-27, and just an eight percent chance of a hike in 2016. Still, market sentiment can change very quickly, so if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike sometime this year will increase.

AUD/USD Fundamentals

Monday (July 11)

• 21:30 Australian NAB Business Confidence. Actual 6 points

Tuesday (July 12)

• 6:00 US NFIB Small Business Index. Estimate 94.1. Actual 94.5
• 9:15 US FOMC Member Daniel Tarullo Speaks
• 9:35 US FOMC Member James Bullard Speaks
• 10:00 US JOLTS Job Openings. Estimate 5.74M. Actual 5.50M
• 10:00 US Wholesale Inventories. Estimate 0.2%. Actual 0.1%
• 13:01 US 10-year Bond Auction

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Tuesday, July 12, 2016

AUD/USD July 12 at 10:50 EDT

Open: 0.7535 High: 0.7638 Low: 0.7530 Close: 0.7622

AUD/USD Technical

• AUD/USD posted gains in the Asian and European sessions. The pair is showing little movement in the North American session
• 0.7739 is providing resistance
• 0.7612 has switched to support following strong gains by AUD/USD on Tuesday. It is a weak line
• Current range: 0.7612 to 0.7739

Further levels in both directions:

• Below: 0.7612, 0.7472, 0.7339 and 0.7251
• Above: 0.7739, 0.7835 and 0.7938

OANDA’s Open Positions Ratio

AUD/USD ratio is showing little movement on Tuesday. Short positions have a small majority (47%), indicative of slight trader bias towards AUD/USD reversing directions and moving downwards.

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.