AUD/USD – Slips on Italy Fallout, Weak Aussie Data

AUD/USD has lost ground in Wednesday trading, as the pair dipped below the 1.02 line for the first time since October 2012. The Aussie dropped as risk sentiment weakened as the markets continue to deal with fallout from the Italian parliamentary elections, which concluded with no clear winner. There are fears of a protracted deadlock, or even the possibility of new elections, neither option being particularly palatable to the markets. There was more bad news for the Australian currency, as Australian Construction Work Done fell way below expectations.

The results of this week’s parliamentary election in Italy shocked the country, and rattled markets in the Eurozone and beyond. The 5-Star Movement, which was largely a protest movement that was dubbed a “non-party”, managed to win more votes than any other single party. The Center-left bloc, headed by Pier Luigi Bersani, will have a majority in the lower house of parliament, but there is a stalemate in the Senate. This leaves the country in a political deadlock, as a workable government needs a majority in both houses. Prime Minister Monti’s party fared poorly at the polls, reflecting widespread dissatisfaction with Monti’s tough austerity measures. The inconclusive results were a worst-case scenario for the markets, and the euro took a hit on Monday, losing more than a cent against the US dollar. The euro has since leveled off, but remains under pressure.

The Reserve Bank of Australia has left room for additional interest rate cuts, and this theme was reiterated by RBA Assistant Governor Guy Debelle, who stated on Monday that the high value of the Australian dollar was weighing on the Australian economy. Debelle hinted that the central bank could take monetary action to help the ailing Australian economy. With the RBA setting interest rates next week, we could see the Aussie lose ground if the markets feel that the RBA will make good on their promise and lower rates.

In the US, the Federal Reserve is back in the spotlight. On Tuesday, Fed Chair Bernard Bernanke testified before the US Senate Banking Committee, and sought to reassure the markets that the Fed was intent on continuing the current round of QE. There had been some speculation after the release of minutes from the most recent policy meeting that the Fed was considering an end to QE, but Bernanke stated that Fed was likely to continue with QE and ultra-low interest rates. Bernanke will testify before the House of Representatives on Wednesday, but analysts are not expecting any dramatic new developments.

AUD/USD for Wednesday, Feb 27, 2013

AUD/USD Feb 27 1 at 13:50 GMT

1.0198 H: 1.0237 L: 1.0184

AUD/USD Technical

AUD/USD remains under pressure, and is currently testing the 1.02 level. The pair is facing resistance at 1.0230. This is a weak line, and was breached earlier on Wednesday. There is stronger resistance at 1.0334. The pair is receiving support at 1.0174. Although this line has remained intact since October 2012, it could see some activity if the Ausralian dollar continues to soften. This is followed by support at 1.0080, whcih is protecting the all-important parity line.

Current range: 1.0174 to 1.0230.

Further levels in both directions:

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

OANDA’s Open Position Ratios

The AUD/USD ratio remains quiet, with little movement in Wednesday trading. This is in line with the current movement by the pair, which is unsteady as the Aussie struggles to remain in 1.02 territory. Trader sentiment continues to be heavily biased towards long positions, indicating an expectation for the pair to undergo a correction and move upwards.

AUD/USD is under pressure, as the markets nervously monitor events in Italy. Concerns overseas have weakened risk sentiment, resulting in reduced appetite for risk assets such as the Aussie. We could see the Australian currency lose more ground against the US dollar.

AUD/USD Fundamentals

• 00:30 Australian Construction Work Done. Estimate 1.5%. Actual -0.5%.
• 13:30 US Core Durable Goods Orders. Estimate 0.3%.
• 13:30 US Durable Goods Orders.Estimate -4.8%.
• 15:00 US Fed Chairman Bernard Bernanke Speaks. Bernanke will testify on the Semiannual Monetary Policy Report before the House Financial Services Committee.
• 15:00 US Pending Home Sales. Estimate 1.7%.
• 15:30 US Crude Oil Inventories. Estimate 2.4M.

*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.