AUD/USD – Aussie in Holding Pattern Ahead of RBA Rate Statement

The Australian dollar is flat on Monday, as the pair is trading at 0.7070 early in the North American session. On the release front, US Core PCE Price Index came in at 0.0%, while Personal Spending posted an identical reading. Later in the day, ISM Manufacturing PMI will be released, with the estimate standing at 48.6 points. In Australia, the RBA will release its rate statement, with the markets expecting the benchmark rate to remain at 2.00%.

China is Australia’s largest trading partner, so the ongoing slowdown hobbling the Asian giant could spell trouble for the Australian currency, which is struggling to stay above the symbolic 0.70 level. The news was not positive on the weekend, as Chinese Manufacturing PMI and the Caixin Manufacturing PMI both remained under the 50-point barrier, pointing to continuing contraction in the Chinese manufacturing sector. This slowdown has led to less demand for Australia raw materials and hurt the Australian export sector. As well, China has cut back on its need for oil, contributing to the collapse in global oil prices.

The recent Federal Reserve policy statement was cautious in tone, as policymakers noted that there are soft spots in the economy, such as consumer spending and exports. As expected, the Fed did not raise rates from the current level of 0.25%. The inflation picture remains problematic, with the Fed saying that inflation levels will remain low, and may not reach the target of 2.0% until 2018. At the same time, the Fed emphasized that the US labor market remains strong. Will we see another rate hike in March? The Fed probably cannot answer this question just yet, so the markets will have to show some patience. Given the Fed’s continuing concerns about a lack of inflation, it’s hard to foresee another rate hike in March absent a strong improvement in key US indicators. The manufacturing sector is another weak spot in the US economy, and this was underscored last week, as the December reports for durables were dismal. Durable Goods dropped 1.2%, while Core Durables plunged 5.1%, its weakest showing since August 2014. These poor numbers underscore ongoing weakness in the US manufacturing sector, which has not improved despite positive economic conditions. There was more disappointing news on the housing front last week, as Pending Home Sales posted a negligible gain of 0.1%, well off the estimate of 1.0%.

AUD/USD Fundamentals

Monday (Feb. 1)

• 8:30 US Core PCE Price Index. Estimate 0.1%. Actual 0.0%
• 8:30 US Personal Spending. Estimate 0.1%. Actual 0.0%
• 8:30 US Personal Income. Estimate 0.2%. Actual 0.3%
• 9:45 US Final Manufacturing PMI. Estimate 52.7 points
• 10:00 US ISM Manufacturing PMI. Estimate 48.6 points
• Tentative – US Loan Officer Survey

Upcoming Key Events

(Feb. 2)

• 19:30 Australian Building Approvals. Estimate 4.8%
• 19:30 Australian Trade Balance. Estimate -2.45B

*Key events are in bold

*All release times are EST

AUD/USD for Monday, February 1, 2016

AUD/USD February 1 at 9:15 EST

AUD/USD  Open: 0.7068  Low: 0.7040  High: 0.7083  Close: 0.7073

AUD/USD Technical

• The pair has been flat throughout the day
• There is weak resistance at 0.7100
• 0.7063 was tested in support and is a weak line
• Current range: 0.7063 to 0.7100

Further levels in both directions:

• Below: 0.7063, 0.6931, 0.6848 and 0.6754
• Above: 0.7100, 0.7213 and 0.7385

OANDA’s Open Positions Ratio

AUD/USD ratio is unchanged on Monday, indicative of a lack of movement from the pair. The ratio is close to an even split between long and short positions, indicative of a lack of trader bias as to which direction the pair will take next.

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.