AUD/USD – Aussie Edges Higher Ahead of Fed Minutes

The Australian dollar has posted gains on Wednesday, after losses in the Tuesday session. AUD/USD is trading slightly below the 0.75 line in North American trading. In economic news, the US will release ISM Non-Manufacturing PMI, with the estimate standing at 53.3 points. The spotlight will be on the Federal Reserve, which will release the minutes of its June policy meeting. Later in the day, Australia releases the AIG Construction Index. On Thursday, employment numbers will be in focus, with the release of ADP Nonfarm Employment Change and Unemployment Claims.

There were no surprises from the RBA on Tuesday, as the central bank maintained the benchmark rate at 1.75%. The markets had not anticipated any monetary moves, as Australians went to the polls just last week. The election remains inconclusive and it may take several more days of political jockeying before a new government takes shape. Back in May, the RBA lowered interest rates following a soft CPI release in the first quarter. Analysts are keeping a close eye on July 27, when the CPI report for the second quarter will be released. The RBA will hold its policy meeting one week later, and a weak CPI release could be the catalyst for a rate cut. Earlier in the week, Retail Sales, the primary gauge of consumer spending, did not impress. The indicator posted a weak gain of 0.2% in May, unchanged from the previous reading.

The Brexit vote in late June continues to preoccupy the markets, and the Federal Reserve and US monetary policy have understandably taken a back seat. The Fed will be back on center stage later on Wednesday, as the Fed releases the minutes of its June policy meeting, which was held just one week before the Brexit vote. Fed Chair Janet Yellen and her colleagues have sounded cautious about the US economy, and the financial instability caused by Brexit could delay any rate hikes until 2017. The US economy is in good shape, but the Fed hasn’t raised rates since last December and is unlikely to seriously consider any rate hikes unless employment and inflation numbers point upwards. Although Yellen recently said that Brexit would have an impact on the US, San Francisco Federal Reserve President John Williams seemed to disagree with that assessment. On Tuesday, Williams said that the US markets had reacted to Brexit as expected, and the impact on the US economy would be much smaller than the euro crisis of 2011-2012. Is Brexit having an impact on the Fed’s monetary stance? We may get an answer to that question when the Fed meets again for a policy meeting on July 27.

Britain may have voted “Out”, but what happens next? There is no timetable as to when the exit from the European Union will take place or what type of trade agreement will define the new economic relationship between the EU and Britain. British leaders are in no rush to leave, but European leaders have called on Britain to exit as soon as possible in order to minimize the uncertainty and instability caused by the Brexit vote. When it comes to the EU, Britain finds itself in limbo (“neither in nor out”), and the lack of clarity regarding Britain’s exit from the EU will likely translate into continuing volatility in the currency markets.

Wednesday (July 6)

• 3:30 RBA Assistant Governor Guy Debelle Speaks
• 8:30 US Trade Balance. Estimate -40.0B. Actual -41.1B
• 9:00 US FOMC Member Daniel Tarullo Speaks
• 9:45 US Final Services PMI. Estimate 51.5
• 10:00 US ISM Non-Manufacturing PMI. Estimate 53.3
• 14:00 US FOMC Meeting Minutes
• 19:30 Australian AIG Construction Index

Updated Key Events

Thursday (July 7)

• 8:15 US ADP Nonfarm Employment Change. Estimate 158K
• 8:30 US Unemployment Claims. Estimate 269K

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Wednesday, July 6, 2016

AUD/USD July 6 at 9:05 EDT

Open: 0.7442 Low: 0.7407 High: 0.7484 Close: 0.7478

AUD/USD Technical

• AUD/USD showed limited movement in the Asian session. The pair posted gains in the European session and is steady in North American trade
• 0.7472 has switched to a support role following gains by AUD/USD on Wednesday. The line is fluid and could see further action in the North American session
• 0.7612 is a strong resistance line
• Current range: 0.7472 to 0.7612

Further levels in both directions:

• Below: 0.7472, 0.7339, 0.7251 and 0.7160
• Above: 0.7612, 0.7739 and 0.7835

OANDA’s Open Positions Ratio

AUD/USD ratio is unchanged on Wednesday, consistent with a lack of significant movement from AUD/USD. Long positions have a small majority (52%), indicative of slight trader bias towards AUD/USD continuing to climb 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.