AUD/USD – Aussie Slightly Higher After Soft US Inflation, Australian Job Numbers Next

The Australian dollar has edged higher on Tuesday, as AUD/USD trades just shy of the 0.77 level in the North American session. On the release front, the RBA released its minutes, which did not outline any plans for further rate cuts.  In the US, CPI posted a flat reading of 0.0%, while Core CPI gained 0.1%. Building Permits came in at 1.15 million, very close to the forecast. Later in the day, Australia releases the Wage Price Index, with an estimate of 0.5%. On Wednesday, the FOMC will publish the minutes of its July policy meeting. Australia will release two key indicators – Employment Change and the Unemployment Rate.

The RBA minutes, released late Monday, proved to be a non-event. The bank did not provide an outlook for future rate moves but did note that there is “considerable” uncertainty in inflation forecasts. The RBA has already gone on record saying that it does not expect inflation to climb near its 2% target before 2018, so it’s a safe bet that any rate hikes are a long way off. Rather, the question facing the markets is how low inflation has to fall before the RBA lowers rates again. The bank cut rates by a quarter point earlier in the month to a record low of 1.50%. The move was fully priced in by the markets, and the Aussie continued to gain ground after the announcement. Some analysts are predicting that rates could fall to as low as 1.0% by mid-2017. Inflation indicators will be under the market microscope, as any soft numbers will likely raise expectations of a rate cut.

In the US, soft inflation numbers remain a sore point in a generally solid US economy. CPI came in at 0.0%, matching the forecast. This marked the first time the key index has failed to post a monthly gain since February, and will raise concerns of deflation in the economy. Core CPI posted a negligible gain of 0.1%, shy of the estimate of 0.2%. The disappointing consumer inflation data, which comes on the heels of soft retail sales reports, makes it very unlikely that the Fed will raise rates in September. Strong employment numbers, led by a stellar NFP report, had raised the odds of a September hike. The Fed has made it clear that any decision to raise rates will be data dependent, so it’s hard to see a case for a rate hike next month, with inflation levels close to zero. This means that we can expect the Federal Reserve to remain on the sidelines until December or even later.

AUD/USD Fundamentals

Monday (August 15)

• 21:30 RBA Monetary Policy Meeting Minutes
• 21:30 Australian New Motor Vehicle Sales. Estimate -1.3%

Tuesday (August 16)

• 8:30 US Building Permits. Estimate 1.16M. Actual 1.15M
• 8:30 US CPI. Estimate 0.0%. Actual 0.0%
• 8:30 US Core CPI. Estimate 0.2%. Actual 0.1%
• 8:30 US Housing Starts. Estimate 1.18M. Actual 1.21M
• 9:15 US Capacity Utilization Rate. Estimate 75.7%. Actual 75.9%
• 9:15 US Industrial Production. Estimate 0.2%. Actual 0.7%
• 20:30 Australian MI Leading Index
• 20:30 Australian Wage Price Index. Estimate 0.5%

Wednesday (August 17)

• 14:00 US FOMC Meeting Minutes
• 21:30 Australian Employment Change. Estimate 10.2K
• 21:30 Australian Unemployment Rate. Estimate 5.8%

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Tuesday, August 16, 2016

AUD/USD August 16 at 11:20 EDT

Open: 0.7674 High: 0.7749 Low: 0.7653 Close: 0.7695

AUD/USD Technical

• AUD/USD showed limited movement in the Asian session. The pair posted strong gains in European trade but has reversed directions and dropped lower in the North American session
• 0.7701 is fluid and currently a weak resistance line. It could break in the North American session
• 0.7560 is a strong support level
• Current range: 0.7560 to 0.7701

Further levels in both directions:

• Below: 0.7560, 0.7440 and 0.7339
• Above: 0.7701, 0.7835, 0.7938 and 0.8045

OANDA’s Open Positions Ratio

AUD/USD ratio is showing short positions with a small majority (54%) on Tuesday. This is indicative of trader bias towards the pair breaking out and moving lower.

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.