AUD/USD – Aussie Gains Ground on Positive Australian CPI Reports

The Australian dollar is showing limited movement on Wednesday, as AUD/USD trades at 0.7040 in the European session. On the release front, Australian CPI posted a gain of 0.4%, above the estimate. In the US, all eyes are on the Federal Reserve, which will release a policy statement and set the benchmark interest rate for January.

The Aussie has posted strong gains, climbing 100 points since the start of the week. The Aussie was bolstered by positive inflation numbers on Tuesday. Australian CPI, one of the most important economic indicators, posted a gain of 0.4% in the fourth quarter, beating the forecast of 0.3%. Trimmed Mean CPI, which excludes the most volatile items which make up CPI, gained 0.6% in the fourth quarter, ahead of the estimate of 0.5%. We’ll get a look at Import Prices later on Wednesday, with the markets braced for a decline of 0.8%. Despite a strong start to the week, the risky Aussie is down about 250 points in January as it struggles to stay above the psychologically significant 0.70 level.

It’s showtime for Janet Yellen and Co., as the Federal Reserve concludes a two-day meeting and issues a policy statement later on Wednesday. The markets are predicting that the Fed will leave interest rates at the current level of 0.25%. Economic conditions have changed significantly since the Fed raise rates in mid-December, with global stock markets down and oil prices sharply lower since the historic rate hike in December. According to Morgan Stanley Morgan chief economist Ellen Zentner, financial conditions have tightened by the equivalent of four rate hikes, so the Fed could hold off from further tightening until mid-2016 or even later. The January statement could well be a balancing act, with the Fed acknowledging weaker economic conditions in the US while emphasizing that the economy is still growing and moving in the right direction. The collapse of oil prices has contributed to the weak inflation picture in the US, with current inflation levels well below the Fed target of 2.0%. Low inflation, indicative of slack in the economy, remains a significant concern for Fed policymakers, who are unlikely to approve another rate hike without an upturn in inflation. Traders should be prepared for possible volatility in the currency markets following the Fed policy statement.

AUD/USD Fundamentals

Tuesday (Jan. 26)

  • 19:30 Australian CPI. Estimate 0.3%. Actual 0.4%
  • 19:30 Australian Trimmed CPI. Estimate 0.5%. Actual 0.6%

Wednesday (Jan. 27)

  • 10:00 US New Home Sales. Estimate 501K
  • 10:30 US Crude Oil Inventories. Estimate 3.8M
  • 14:00 FOMC Statement
  • 14:00 Federal Funds Rate. Estimate <0.50%
  • 19:30 Australian Import Prices. Estimate -0.8%

Upcoming Key Events

Thursday (Jan. 28)

  • 8:30 US Core Durable Goods Orders. Estimate 0.0%
  • 8:30 US Unemployment Claims. Estimate 281K

*Key events are in bold

*All release times are EST

AUD/USD for Wednesday, January 27, 2016

AUD/USD January 27 at 6:00 EST

AUD/USD Open: 0.7004  Low: 0.6979  High: 0.7052  Close: 0.7034

AUD/USD Technical

S3 S2 S1 R1 R2 R3
0.6754 0.6848 0.6931 0.7063 0.7100 0.7213
  • The pair posted slight gains in the Asian and has leveled off in European trade
  • 0.6931 is providing support
  • There is resistance at 0.7063
  • Current range: 0.6931 to 0.7063

Further levels in both directions:

  • Below: 0.6931, 0.6848, 0.6754 and 0.6625
  • Above: 0.7063, 0.7100 and 0.7213

OANDA’s Open Positions Ratio

AUD/USD ratio is showing little movement, reflective of a lack of movement from the pair. The ratio remains close to an even split between long and short positions, indicative of a lack of trader bias as to which direction the pair will take next.

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 and macroeconomic analysis, Kenny Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in major online financial publications including, Seeking Alpha and FXStreet. Kenny has been a MarketPulse contributor since 2012.