AUD/USD – Aussie Edges Higher as Chinese Manufacturing Data Meets Expectations

The Australian dollar continues to struggle, as the pair trades slightly below the 0.92 level. Chinese Manufacturing PMI dropped slightly, but managed to stay above the 50-point level, which indicates expansion. Key Chinese data is often a market-mover for the Aussie, as China is Australia’s most important trading partner. Over the weekend, Australian data was mixed. AIG Manufacturing Index rose to a sixteen-month high, while MI Inflation Gauge dipped lower. In the US, today’s highlight is ISM Manufacturing PMI. The markets are hoping that the key index will bounce back from a weak release last month and climb above the 50-point level, which indicates expansion.

The markets may have become accustomed to seeing mixed numbers out of the US, but last week’s releases were mostly solid, helping to boost market confidence and the US dollar. Manufacturing, consumer confidence and housing numbers all beat their estimates. Unemployment Claims bounced back after a poor release the week before, and almost matched the estimate. Although GDP fell short of the estimate, the dollar remained strong, as the indicator pointed to respectable growth by the US economy. These solid numbers are particularly encouraging as they come from a wide range of economic sectors. Further strong numbers out of the US could be an indication that the recovery is gaining steam.

There have been some conflicting signals lately out of the US Federal Reserve concerning quantitative easing. The US dollar surged after Federal Reserve Chair Bernard Bernanke said that the Fed was planning to scale down QE. However, US (and global) stock markets fell sharply on the news, and the Fed found itself trying to contain the damage and calm the nervous markets. Dallas Fed President Richard Fisher declared that “tapering” should not be confused with “tightening” and said that the Fed was not exiting from its accommodative policy action just yet. Minneapolis Fed President Naraya Kocherlakota reiterated that the Fed was continuing with an expansionary monetary policy event if QE was terminated, and said that it was a misperception to assume that the Federal Reserve had turned more hawkish. One can be excused for dismissing these statements as little more than linguistic acrobatics, and it is questionable if the markets will be reassured by these statements from the Fed, which are clearly aimed at damage control and reassuring nervous investors. Talk of tapering QE has been a positive factor for the US dollar, which remains strong against the major currencies.

Global growth has been sputtering for some time, and there was more bad news, as an HSBC report downgraded its forecast for global growth. In its report, HSBC said that it had lowered its forecast due to the US Federal Reserve decision to cut QE, as well as a sharp slowdown in China and other emerging  countries such as India and Brazil. The report revised China’s GDP from 8.2% to 7.4% for 2013 and from 8.4% to 7.4% for next year. Weaker global growth will likely have a strong impact on countries which heavily depend on exports, such as Japan, Canada and Australia, and this could have a strong negative impact on these countries’ currencies.

In Australia, the pre-election battles are heating up, as Prime Minister Julia Gillard was defeated in a Labor leadership race last week and was replaced by Kevin Rudd, who takes over as Prime Minister. Elections are  expected in September, and Labor is facing an uphill battle to win re-election. However, opinion polls show that Labor will pick up more seats under Rudd’s leadership. Meanwhile, Chris Bowen, a close ally of Rudd, has been appointed Treasurer. Bowen will also have his work cut out for him, as the Australian economy continues to sputter, despite repeated rate cuts by the RBA. Rudd is considered as being business-friendly, and his victory in the Labor leadership race could boost consumer and business confidence, and help prop up the sinking Australian dollar.

AUD/USD for Monday, July 1, 2013

AUD/USD July 1 at 11:50 GMT

AUD/USD 0.9190 H: 0.9207 L: 0.9136

AUD/USD Technical

AUD/USD has edged higher on Monday, but has not been able to consolidate above the 0.92 level. The pair faces support at 0.9135. Given the volatility we are seeing from the pair, this line cannot be considered safe. There is a stronger support level at 0.9071. On the upside, the pair faces resistance at 0.9221. This is a weak line, and could be tested if the Aussie can move higher. We encounter stronger resistance at 0.9328.

• Current range: 0.9135 to 0.9221

Further levels in both directions:

• Below: 0.9135, 0.9071, 0.9000, 0.8916 and 0.8747
• Above: 0.9221, 0.9328, 0.9405, 0.9541 and 0.9651

OANDA’s Open Positions Ratio

AUD/USD ratio is pointing to movement towards long positions in Monday trading. This is consistent with what we are currently seeing from AUD/USD, as the Australian dollar has edged higher. The ratio continues to be dominated by long positions, indicating a strong trader bias towards the Australian dollar moving higher.

AUD/USD continues to struggle, as the pair drops to multi-year lows. If the downward trend continues, we could see more pressure on the significant 0.90 level. There is a good chance of some volatility on Tuesday, as the RBA releases its key interest rate for July.

AUD/USD Fundamentals

• 00:30 Australian MI Inflation Gauge. Actual 0.0%.
• 13:00 US Final Manufacturing PMI. Estimate 52.4 points.
• 14:00 US ISM Manufacturing PMI. Estimate 50.6 points.
• 14:00 US ISM Manufacturing Prices. Estimate 50.5 points.
• 14:00 US Construction Spending. Estimate 0.6%.

*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.