AUD/USD – Aussie Inches Higher, Australian Capex Next

The Australian dollar continues to have an uneventful week, as the pair trades at the 0.72 line in the Wednesday session. On the release front, Australian Construction Work Done came in at -2.6%, below expectations. Australia will publish Private Capital Expenditure for the first quarter, with the markets bracing for a sharp decline of 3.2%. Over in the US, we’ll get a look at Goods Trade Balance and Crude Oil Inventories. On Thursday, the US will release durable good reports.

Australia’s construction sector continues to struggle. Construction Work Done declined 2.6 in the first quarter, marking a third consecutive quarter of contraction. The Australian dollar remains under pressure and is trading close to 10-week lows. Much of the Aussie’s woes can be attributed to the RBA, which unexpectedly cut rates in early May. Last week, the RBA minutes hinted at another rate cut, as inflation levels remain stubbornly low. The currency lost more ground on Tuesday, as RBA Governor Glenn Stevens defended the RBA’s monetary policy, saying that there was no need to change the 2 percent to 3 percent target band for inflation. The RBA has put the markets on notice that it is considering further rate cuts, but the Australian dollar’s 500-point plunge since late April has given the central bank some breathing room. We’re unlikely to see the RBA make any moves prior to August, since the government has called an election for July 2.

Will the Federal Reserve press the rate trigger in June? Last week’s Federal Reserve’s minutes were more hawkish than expected, and this resulted in strong volatility in the currency markets last week. It has also renewed market speculation about a June rate hike. The Fed is unlikely to make a move if key indicators don’t show improvement, particularly inflation indicators. On Monday, FOMC members James Bullard and John Williams voiced support for further rate hikes. Bullard said that the Fed planned to resume rate hikes if the US economy strengthened, while Williams reiterated that he expected the Fed to raise rates two or three times in 2016. However, there appears to be a gap between what Fed members are saying and market sentiment, as many analysts are projecting only one rate hike this year. The guessing game as to what the Fed has in mind is likely to continue into June, but it’s safe to say that another rate move will be data-dependent, so stronger US numbers will increase the likelihood of a quarter-point hike at the June policy meeting.

AUD/USD Fundamentals

Tuesday (May 24)

• 21:30 Australian Construction Work Done. Estimate -1.4%. Actual -2.6%

Wednesday (May 25)

• 8:30 US Goods Trade Balance. Estimate -60.1B
• 9:00 US HPI. Estimate 0.4%
• 9:45 US Flash Services PMI. Estimate 53.1
• 10:30 US Crude Oil Inventories. Estimate -1.7M
• 21:30 Australian Private Capital Expenditure. Estimate -3.2%

Thursday (May 26)

• 8:30 US Core Durable Goods Orders. Estimate 0.3%
• 8:30 US Unemployment Claims. Estimate 275K

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Wednesday, May 25, 2016

AUD/USD May 25 at 8:00 EDT

Open: 0.7188 Low: 0.7172 High: 0.7219 Close: 0.7207

AUD/USD Technical

• AUD/USD has shown limited movement in the Asian and European sessions
• 0.7160 is a weak support line
• There is resistance at 0.7251
• Current range: 0.7160 to 0.7251

Further levels in both directions:

• Below: 0.7160, 0.7049, 0.6916 and 0.6843
• Above: 0.7251, 0.7339 and 0.7472

OANDA’s Open Positions Ratio

AUD/USD ratio is unchanged on Wednesday, consistent with the lack of movement from AUD/USD. Long positions have a strong majority (60%), indicative of trader bias towards AUD/USD breaking out 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.