AUD/USD – Aussie Stuggling After Strong US Housing Numbers

The Australian dollar is trying to recover on Thursday, after suffering sharp losses on Wednesday, as the US posted excellent housing numbers. The Aussie slumped about 150 points on Wednesday, dropping to the low-0.91 range. The Aussie was hit hard as US New Housing Sales soared, posting its best numbers in five years. On Thursday, AUD/USD has recovered slightly. In economic releases, there are two key US events on the calendar – Core Durable Goods Orders and Unemployment Claims. There are no Australian releases for the remainder of the week.

The only Australian releases of the week were inflation numbers, which came out on Wednesday. Australian CPI posted a second straight gain of 0.4%, just shy of the forecast of 0.5%. Trimmed Mean CPI rose 0.5%, matching the estimate. Earlier in the week, Chinese Flash Manufacturing PMI posted a lower reading for the third consecutive month. The indicator has not been above the 50 level since April, pointing to ongoing contraction in the Chinese manufacturing sector. The index dropped from 48.3 to 47.7 points, well below the estimate of 48.6 points. The Aussie is sensitive to key Chinese releases, as China is Australia’s number one trading partner.

This week’s housing releases out of the US have pointed in opposite directions. Earlier in the week, Existing Home Sales dropped from 5.18 million to 5.08 million, way off the forecast of 5.27 million. However, New Home Sales soared on Wednesday, jumping from 476 thousand to 496 thousand, well above the estimate of 482 thousand. This was the key housing indicator’s best performance in five years. With mixed housing releases this week, the markets will have to wait for the August releases to get a better handle on the direction of the US housing industry.

The question of when the Fed will pull the trigger on QE tapering continues to preoccupy the markets. Despite the zigzagging we’ve seen on this issue from the Fed, there is a strong likelihood that this will take place before the end of 2013, barring a major downturn by the US economy. There is speculation that the Fed could take action in September. Appearing on Capitol Hill last week, Fed chair Bernard Bernanke was careful not to get pinned down with any specific deadlines, and instead said that stronger growth and lower unemployment were the key factors to any action over QE. The problem with this approach is the markets remain in the dark, and every strong US release fuels expectation about QE tapering, while a weak release does the opposite. This of course, contributes to market instability, as we’ve seen in recent months with the US dollar. The G20 seemed to have this issue in mind when it issued a statement that member countries had agreed that future monetary policy moves would be “carefully calibrated and clearly communicated”. Whether the Fed will suddenly show its cards is doubtful, especially in light of Bernanke’s vague and rather dull performance in front of Congress last week.

AUD/USD for Thursday, July 25, 2013

AUD/USD July 25 at 12:30 GMT

AUD/USD 0.9175 H: 0.9186 L: 0.9132

AUD/USD Technical

AUD/USD tumbled on Wednesday, but has posted some gains on Thursday. The pair continues to face resistance at 0.9221. This is a weak line, and could face strong pressure if the Aussie pushes higher. This is followed by stronger resistance at 0.9328. On the downside, 0.9135 is providing support. It was breached briefly in the Asian session, but AUD/USD then bounced higher. This is followed by a support level at 0.9072.

• Current range: 0.9135 to 0.9221

Further levels in both directions:

• Below: 0.9135, 0.9072, 0.9000, 0.8916 and 0.8747
• Above: 0.9221, 0.9328, 0.9405, 0.9541 and 0.9657

OANDA’s Open Positions Ratio

AUD/USD ratio continues the movement we saw on Wednesday, pointing to movement towards long positions in Thursday trading. This is consistent in what we are seeing from the pair, as the Aussie has bounced back and recovered some of the sharp losses sustained on Wednesday. The ratio continues to have a substantial majority of long positions, pointing to trader bias in favor of the Australian dollar moving upwards.

The Aussie took at tumble on Wednesday after a very strong housing release out of the US. The currency has reversed direction, and is moving towards the 0.92 line. With the US releasing key manufacturing and employment data later in the day, we could see some movement from AUD/USD.

AUD/USD Fundamentals

• 12:30 US Core Durable Goods Orders. Estimate 0.5%.
• 12:30 US Unemployment Claims. Estimate 339K.
• 12:30 US Durable Goods Orders. Estimate 1.1%.
• 12:45 US Treasury Secretary Jack Lew Speaks.
• 14:30 US Natural Gas Storage. Estimate 44B.

*Key releases are highlighted in bold

*All release times are GMT

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