AUD/USD – Aussie Falls Below Significant 90 Line

The Australian dollar continues to spiral downwards against its US counterpart. The struggling Aussie dropped below the significant 0.90 level late Wednesday, for the first time since early July.  In economic releases on Thursday, Australian numbers were mixed, as New Home Sales looked solid, but Import Prices posted a decline for the first time in three months. On Thursday, there are two key releases out of the US – Unemployment Claims and ISM Manufacturing PMI. On Wednesday, the greenback got some help as the Federal Reserve stated on it would continue its current levels of QE and expressed cautious optimism about the US economy

Anyone expecting dramatic news from the Federal Reserve on Wednesday came home empty-handed. As expected, the Fed said it would continue with the present level of QE, which involves $85 billion in asset purchases each month, and gave no indication about when it might scale down QE. There has been talk that the Fed could taper QE as early as September, and the speculation and uncertainty will likely continue to cause volatility in the markets as long as the Fed doesn’t show its cards. The Fed gave a cautious thumbs-up to current economic activity, noting that the economy was growing at a “modest” pace.

How low can the Aussie go? AUD/USD has now dropped about 300 points in a little over a week. The Australian currency has dropped below the critical 0.90 level, and touched a low of 0.8928 in Thursday’s European session. This marked the pair’s lowest level since September 2010. Australian releases on Thursday were mixed. HIA New Home Sales posted a gain of 3.4%, well above the previous month’s rise of 1.6%. However, Import Prices declined 0.3%, way off the estimate of 1.9%. Commodity Prices continues to slump, dropping 11.8%, its sharpest drop since November 2012. Weakness in both import and export prices are certainly an unwelcome mix, and points to weakness in demand for imports and trouble in the export sector.

Earlier in the week, RBA Governor Glenn Stevens hinted that there was further room for an interest rate reduction next week. Stevens complained about low business confidence, the end of the mining boom and even criticized the government for not providing a specific date for the election. This is not the first time that Stevens has made comments which have impacted on the currency markets, and his comments about a possible rate reduction resulted in more pressure on the struggling Australian dollar. Analysts are saying there is a strong likelihood that the RBA will take action and lower rates, probably to 2.50%.

AUD/USD for Thursday, August 1, 2013

AUD/USD August 1 at 12:05 GMT

AUD/USD 0.8979 H: 0.8992 L: 0.8928

AUD/USD Technical

AUD/USD continues to lose ground, and has dropped below the all-important 0.9000 level. The pair dropped to a low of 0.8928 early in the Asian session, but has since climbed closer to the 0.90 line. AUD/USD is receiving support at 0.8916. Given the sharp drops we are seeing in the pair, this line cannot be considered safe. 0.8844 is the next support level. This line has remained in place since August 2010.

On the upside, the pair faces weak resistance at the round number of 0.9000. This is followed by resistance at 0.9072 which has strengthened as the Aussie continues to drop lower.

• Current range: 0.9000 to 0.9072

Further levels in both directions:

• Below: 0.8916, 0.8844, 0.8747, 0.8578 and 0.8467.
• Above: 0.9000, 0.9135, 0.9221, 0.9328, 0.9405 and 0.9541

OANDA’s Open Positions Ratio

AUD/USD ratio has reversed directions and is pointing to movement towards short positions. This is consistent with what we are seeing from the pair, as the Australian dollar has lost more ground against the US currency.

The Aussie has dropped below the important 90 level, and remains under pressure. Will AUD/USD continue to drop? The pair could show further movement during Thursday trading, with the US releasing major employment and manufacturing numbers later today.

AUD/USD Fundamentals

• 1:00 Australian HIA New Home Sales. Actual 3.4%.
• 1:30 Australian Import Prices. Estimate 1.9%. Actual -0.3%.
• 6:30 Australian Commodity Prices. Actual -11.8%.
• 12:30 US Unemployment Claims. Estimate 346K.
• 13:00 US Final Manufacturing PMI. Estimate 52.1 points.
• 14:00 US ISM Manufacturing PMI. Estimate 52.1 points.
• 14:00 US Construction Spending. Estimate 0.4%.
• 14:00 US ISM Manufacturing Prices. Estimate 53.0 points.
• 14:30 US Natural Gas Storage. Estimate 55B.
• All Day: US Total Vehicle Sales. Estimate 15.8M.

*Key releases are highlighted in bold

*All release times are GMT

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