AUD/USD – Loses Ground after Weak Construction Data

AUD/USD dropped lower after weak Australian construction numbers on Monday. Building Approvals posted a second consecutive decline and fell well below market expectations. ANZ Job Advertisements was up, while Company Operating Profits was slightly below the estimate. There are on scheduled releases out of the US on Monday. The markets continue to be jittery after US lawmakers were unable to come to terms over the budget crisis last week, resulting in automatic spending cuts. The Australian dollar lost ground in the Asian session, and fell close to the 1.01 level. It has recovered somewhat, as it trades in the 1.0150 range.

Remember the “fiscal cliff” crisis in the US just a few months ago? This episode rattled the markets and sent currencies spinning out of control early in the new year. The US budget crisis was averted but never really went away, and the newest installment is called “sequestration”. Democrats and Republicans picked up where they left off in January, failing to reach agreement and then point fingers at each other for the impasse. This past Friday, meanwhile, $85 billion in automatic spending cuts kicked in. The core issues, spending cuts and tax reforms, have not changed and continue to divide US lawmakers along party lines. Republicans want to make major cuts to federal social programs such as Medicaide, while Democrats insists on tax hikes as part of any deficit reduction plan. The negotiations are set to continue on Capitol Hill this week, as Congress tries to break the budget impasse.

Australian data continues to worry the markets, and the Aussie continues to pay the price. The MI Inflation Gauge came in at a flat 0.0%, compared to the 0.3% gain in the previous month. Building Approvals, a key release, slumped by 2.4%. This was way off the estimate of a 2.8% gain. This was the indicator’s third decline in the past three readings, and points to weakness in the Australian construction industry. ANZ Job Advertisements jumped 3.0%, which was very welcome news after six straight declines. Company Operating Profits, a quarterly release, was a disappointment, declining by 1%. This was close to the estimate of -0.9%, but is indicative of trouble in the business sector. The indicator has not posted a gain since Q3 of 2011. The markets will be hoping for better news on Tuesday, as Australia releases Retail Sales and the Reserve Bank of Australia sets interest rates.

AUD/USD for Monday, March 4, 2013

AUD/USD March 4 at 12:50 GMT

1.0148 H: 1.0198 L: 1.0115

AUD/USD Technical

AUD/USD lost ground in Monday’s Asian session, although it has made a partial recover in European trading. The pair is facing resistance at 1.0174. This is a weak line which saw action earlier on Monday, and could continue to see activity. There is stronger resistance at 1.0230. On the downside, the line of 1.0080 is next. It is protecting the all-important parity line, and has held firm since June 2012. Will this line remain firm, or will the pair continue to push downwards?

Current range: 1.0174 to 1.0230.

Further levels in both directions:

• Below: 1.0080, 1.00, 0.9948, 0.9858, and 0.9764
• Above: 1.0174, 1.0230, 1.0334, 1.0424, 1.0568 and 1.0605

OANDA’s Open Position Ratios

The AUD/USD ratio is in action as we begin the new week, pointing to strong movement towards long positions. The pair has leveled off after weakening in Monday trading, but has not been able to sustain much in the way of upward movement. If the activity in the ratio continues, it could signal an expectation for the pair to undergo a correction and move upwards.

AUD/USD was hit by a dismal Building Permits release, and the budget crisis in the US is bearish for risk currencies such as the Australian dollar. With the markets waiting for the release of Retail Sales and the Official Cash Rate, we could see some heightened volatility on Tuesday.

AUD/USD Fundamentals

• Australian MI Inflation Gauge. Actual 0.0%.
• Australian Building Approvals. Estimate 2.8%. Actual -2.4%.
• Australian ANZ Job Advertisements. Estimate 3.0%.
• Australian Company Operating Profits. Estimate -0.9%. Actual -1.0%.
• 13:00 US FOMC Member Janet Yellen Speaks.
• 18:15 US FOMC Member Jerome Powell Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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.