AUD/USD – Aussie Subdued Ahead of Key CPI Report

The Australian dollar is almost unchanged on Monday, as AUD/USD is trading at 0.7460 in the North American session. On the release front, it’s a quiet start to the week, with no US or Australian releases on Monday. Tuesday will be busy, with the US releasing two key events – CB Consumer Confidence and New Home Sales. Australia will release CPI for the second quarter, a reading which will be carefully watched by the markets and the RBA.

Australia will release a highly-anticipated CPI reading on Tuesday. The indicator, released each quarter, could be a determining factor as to whether the RBA cuts rates next week. The RBA caught the markets flat-footed in May, when it lowered rates from 2.00% to 1.75% in response to a dismal CPI release in the first quarter of -0.2%. Most analysts had projected that the bank would maintain rate levels. The markets won’t be fooled twice and will be keeping a close eye on the CPI release. If the inflation indicator falls short of expectations, there’s a strong chance that the RBA will again lower interest rates at its August 2 meeting, in order to boost economic growth and inflation.

Australian business sentiment continued to improve in the second quarter, according to the NAB Quarterly Business Confidence survey. The indicator posted a gain of 2 points, which points to optimism, although it was not as high as the previous two quarters, which both came in at plus-4 points. Last week, the RBA minutes indicated that there was further scope to lower interest rates, given low inflation levels. However, the minutes added that a monetary move by the bank would be data-dependent. In other words, if inflation and other key indicators show improvement, there will be less pressure on the bank to cut rates in order to boost inflation and bolster economic growth.

The Federal Reserve will be in the spotlight this week, following decisions by the BoE and ECB not to lower interest rates. The Fed meets for a policy meeting on July 27 but is unlikely to announce a rate hike at that time. However, with the US posting some solid numbers in the past few weeks, speculation has risen that the bank could raise rates before the end of the year. Another rate hike will be data-dependent, so if key indicators beat expectations, the likelihood of a rate hike will continue to increase. However, the Fed will be hesitant to make a move if inflation remains stuck at very low levels, well short of the Fed’s target of around 2 percent.

AUD/USD Fundamentals

Monday (July 25)

  • There are no British or US releases on the schedule

Upcoming Key Events

Tuesday (July 26)

  • 10:00 US CB Consumer Confidence. Estimate 95.6
  • 10:00 US New Home Sales. Estimate 560K
  • 21:30 Australian CPI. Estimate 0.4%

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Monday, July 25, 2016

AUD/USD July 25 at 10:40 EDT

Open: 0.7473 High: 0.7492 Low: 0.7455 Close: 0.7461

AUD/USD Technical

S3 S2 S1 R1 R2 R3
0.7251 0.7339 0.7440 0.7560 0.7701 0.7835
  • AUD/USD has showed limited movement in the Monday session
  • 0.7440 remains fluid and was tested in support earlier. It is a weak line and could see further action in the North American session
  • 0.7560 is a strong resistance line
  • Current range: 0.7440 to 0.7612

Further levels in both directions:

  • Below: 0.7440, 0.7339, 0.7251 and 0.7105
  • Above: 0.7560, 0.7701 and 0.7835

OANDA’s Open Positions Ratio

On Monday, AUD/USD ratio is showing long positions with a majority (55%). This is indicative of trader bias towards AUD/USD continuing to post gains.

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.