AUD/USD – Aussie Plunge Continues, 70 Line Next?

The Australian dollar has posted sharp losses on Wednesday, as AUD/USD trades at 0.7070 in the European session. On the release front, there are no Australian events on the schedule, but we’ll get a look at Building Approvals and Trade Balance early on Thursday. In the US, there are a host of key events, highlighted by the FOMC Minutes and ADP Nonfarm Payrolls.

It’s been a terrible start to the New Year for the Australian dollar, which has lost about 230 points since the start of the week and is moving closer to the symbolic 0.70 level. The plunge was precipitated by weak Chinese manufacturing data early in the week. Chinese Caixin Manufacturing PMI softened in December, as the key indicator slipped to 48.2 points in December, short of the forecast of 48.9 points. The PMI broke above the 50-point level only once in all of 2015, pointing to ongoing contraction in the Chinese manufacturing sector. Meanwhile, Australian Commodity Prices continues to post sharp declines, and slipped 23.3% in December. These figures underscore decreased Chinese demand for Australian exports, which has hurt the Australian economy and weakened the commodity-based Australian dollar. The Australian dollar remains under strong pressure as its US counterpart continues to show broad strength, so it could be a miserable January for the Australian currency.

The Federal Reserve will release the minutes of the momentous December policy meeting, at which the Fed opted to raise interest rates for the first time in over nine years, by 0.25 percent. The Fed has hinted that the December move will kick-off a series of incremental hikes in 2016, and the markets will be looking for confirmation, or at least a hint that this is the Fed’s monetary strategy. We’ll also get a look at employment data, with the release of the ADP Nonfarm Payrolls, which precedes the official Nonfarm Payroll report later in the week. As well, the US will release the ISM Non-Manufacturing PMI and Trade Balance. The markets will thus have plenty of data to sift through later today, so we could see some more movement from AUD/USD during the North American session.

AUD/USD Fundamentals

Wednesday (Jan. 6)

• 13:15 US ADP Non-Farm Employment Change. Estimate 193K
• 13:30 US Trade Balance. Estimate -44.0B
• 14:45 US Final Services PMI. Estimate 55.1 points
• 15:00 US ISM Non-Manufacturing PMI. Estimate 56.0 points
• 15:00 US Factory Orders. Estimate -0.2%
• 15:30 US Crude Oil Inventories. Estimate 0.7M
• 19:00 US FOMC Meeting Minutes

Upcoming Key Events

Thursday (Jan. 7)

• 00:30 Australian Building Approvals. Estimate -2.8%
• 00:30 Australian Trade Balance. Estimate -2.98B

*Key releases are highlighted in bold

*All release times are GMT

AUD/USD for Wednesday, January 6, 2016

AUD/USD January 6 at 10:30 GMT

AUD/USD 0.7065 H: 07171 L: 0.7057

AUD/USD Technical

• AUD/USD has posted losses in the Asian and European sessions.
• 0.7063 is under strong pressure in support. It was tested earlier in the day
• The round number of 0.7100 has switched to a resistance role as the Aussie continues to weaken
• Current range: 0.7100 to 0.7213

Further levels in both directions:

• Below: 0.7063, 0.6931 and 0.6848
• Above: 0.7100, 0.7213, 0.7349 and 0.7440

OANDA’s Open Positions Ratio

AUD/USD ratio is showing an increase in open long positions, which have a majority of 56% of the open positions. This is consistent with the sharp losses sustained by AUD/USD, which has led to numerous open short positions being covered. A majority of long positions is indicative of trader bias towards the pair reversing directions and moving higher.

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.