AUD/USD – Steady Ahead of Aussie Employment Report

The Australian dollar is showing limited movement on Wednesday, following considerable gains which marked the Thursday session. AUD/USD is trading slightly above the 0.76 line in the North American session. In economic news, US Import Prices posted a weak gain of 0.2%, well below expectations. Crude Oil Inventories posted a decline of 2.5 million, compared to a forecast of a drop of 2.3 million. In Australia, Westapac Consumer Sentiment posted a sharp decline of 3.0%. Later in the day, Australia releases key employment data, with the markets braced for softer readings from Employment Change and the Unemployment Rate.

The Australian consumer continues to remain skeptical about the economy, according to the most recent consumer confidence report. Westpac Consumer Confidence slipped 3.0% and fell to 99.1 points (a reading below the 100-level indicates pessimism). To be fair, the survey took place just after the Australian election campaign, so the political uncertainty after the vote may well have had a negative impact on the confidence level of consumers. The consumer report failed to follow the lead of NAB Business Confidence survey on Monday, which surged to a reading of plus-6. The strong NAB figure surprised many experts, as the global economy is weak and the Brexit shocker has a chilling effect on the financial markets. Strong business confidence could point to improved economic growth in the second quarter, which would be bullish for the Australian dollar. The currency posted strong gains after the NAB report and punched past the 0.76 line for the first time since the Brexit vote in late June.

The recent election in Australia was unusually close and kept the country in political limbo for over a week. On Sunday, Prime Minister Malcolm Turnbull declared victory and is expected to form a government with a slim majority. The election uncertainty took its toll last week, as Standard & Poor’s downgraded the outlook on Australia’s AAA credit rating from stable to negative. The credit agency cited lingering uncertainty over the inconclusive Australian election, and warned that the country’s credit rating was in jeopardy if Australia didn’t get its fiscal house in order. On Monday, the Moody’s credit agency weighed in as well, stating that it “expects fiscal consolidation to remain a key policy objective of the government”. Turnbull will have to act quickly to restore confidence in the Australian economy and convince international investors that the country is headed on the right path.

After an historic rate hike in December, there were high hopes that the Fed would continue with a series of hikes in 2016. Fast forward to July, and the Fed is yet to make a move this year, as the US economy has not matched its impressive growth rates in 2015. Last week’s Fed minutes reinforced the perception that the Fed is unlikely to tighten policy anytime soon, as the tentative Fed remains cautious about the strength of the US economy. Although some Fed members have said that rates could be raised up to two times in 2016, clearly the markets aren’t buying it. Given the current economic climate, the markets are pessimistic about any rates moves before 2017. Investors have priced in no chance of a rate increase at the next Fed meeting on July 26-27, and just an eight percent chance of a hike in 2016. Still, market sentiment can change very quickly, so if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike this year will increase.

AUD/USD Fundamentals

Tuesday (July 12)

• 20:30 Australian Westpac Consumer Sentiment. Actual 99.1 points

Wednesday (July 13)

• 8:30 US Import Prices. Estimate 0.6%. Actual 0.2%
• 10:30 US Crude Oil Inventories. Estimate -2.3M. Actual -2.5M
• 13:01 US 30-year Bond Auction
• 14:00 US Beige Book
• 14:00 US Federal Budget Balance. Estimate 24.2B
• 21:00 Australian MI Inflation Expectations
• 21:30 Australian Employment Change. Estimate 10.1K
• 21:30 Australian Unemployment Rate. Estimate 5.8%
• 21:30 Australian New Motor Vehicle Sales

Upcoming Key Events

Thursday (July 14)

• 8:30 US PPI. Estimate 0.3%
• 8:30 US Unemployment Claims. Estimate 263K

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Wednesday, July 13, 2016

AUD/USD July 13 at 10:50 EDT

Open: 0.7602 High: 0.7638 Low: 0.7577 Close: 0.7625

AUD/USD Technical

• AUD/USD showed limited movement in the Asian session. The pair posted slight gains in the European session and is steady in North American trade
• 0.7739 is providing resistance
• 0.7612 is a weak resistance line. It was tested earlier in the Wednesday session
• Current range: 0.7612 to 0.7739

Further levels in both directions:

• Below: 0.7612, 0.7472, 0.7339 and 0.7251
• Above: 0.7739, 0.7835 and 0.7938

OANDA’s Open Positions Ratio

AUD/USD ratio is almost unchanged on Wednesday, consistent with the lack of movement from AUD/USD. Short positions have a small majority (48%), indicative of slight trader bias towards AUD/USD reversing directions and moving downwards.

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.