AUD/USD – Aussie Dips Under 71 after Fed Turns Hawkish

The Australian dollar has posted slight losses on Thursday, as AUD/USD trades at 0.7075 in the North American session. The Aussie lost 100 points on Wednesday, as the US Federal Reserve surprised the markets with a hawkish policy statement, sending the US dollar sharply higher against its major rivals. In Thursday’s economic news, US Advance GDP was close to the estimate, and Unemployment Claims beat expectations. Australian New Home Sales posted a sharp decline of 4%, while Import Prices rose 1.4%, which was within expectations. Traders should keep a close eye on Friday’s key event – US Employment Cost Index.

What had been an uneventful week for the Australian dollar changed suddenly on Wednesday, courtesy of the Federal Reserve. The markets had lowered expectations about a rate hike before the end of the year, but the Fed statement revived the possibility of a December hike, and the Australian dollar plunged 170 points immediately after the announcement. The Fed stated that it would raise rates when there is further improvement in the US labor market and when inflation rises closer to the 2% target. The markets pounced on the following excerpt from the statement:

“In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation” [emphasis mine]

The next Fed meeting is mid-December, and the markets will be in alert mode for any further hints about a rate hike. As well, key US numbers will be closely monitored, especially employment and inflation data, as the strength of these numbers in the next several weeks will play a critical role in determining whether the Fed will press the rate trigger in December.

Earlier on Thursday, US Advance GDP for the third quarter posted a gain of 1.5%. This was a much softer reading than the Final GDP in Q2 of 3.9%, but was very close to the forecast of 1.6%. Unemployment Claims beat the estimate for a fourth straight week, coming in at 260 thousand. The estimate stood at 264 thousand.

In Australia, CPI, which is released quarterly, softened to 0.5% in the third quarter, compared to 0.7% in the previous quarter. Trimmed Mean CPI slipped to 0.3%, its lowest gain since Q1 of 2014. These readings point to softer inflation levels, as domestic and global demand for  Australian products has weakened, hurting the economy and the Australian dollar. We’ll get a look at PPI, the primary gauge of inflation in the manufacturing sector, late Thursday.

AUD/USD Fundamentals

Thursday (Oct. 29)

• 00:00 Australian New Home Sales. Actual -4.0%
• 00:00 Australian Import Prices. Estimate 1.6%. Actual 1.4%
• 12:30 US Advance GDP. Estimate 1.6%. Actual 1.5%
• 12:30 US Unemployment Claims. Estimate 264K. Actual 260K
• 12:30 US Advance GDP Price Index. Estimate 1.5%. Actual 1.2%
• 13:10 FOMC Member Dennis Lockhart Speaks
• 14:00 US Pending Home Sales. Estimate 1.1%. Actual -2.3%
• 14:30 US Natural Gas Storage. Estimate 70B. Actual  63B

Upcoming Key Events

Friday (Oct. 30)

• 12:30 US Employment Cost Index. Estimate 0.6%

*Key releases are highlighted in bold

*All release times are GMT

AUD/USD for Thursday, October 29, 2015

AUD/USD October 29 at 18:05 GMT

AUD/USD 0.7141 H: 0.7196 L: 0.7111

AUD/USD Technical

• AUD/USD was flat in the Asian session and has posted marginal losses in the European and North American sessions.
• On the downside, the round number of 0.71 remains under pressure.
• 0.7213 is an immediate resistance line.
• Current range: 0.7100 to 0.7213

Further levels in both directions:

• Below: 0.7100, 0.7060 and 0.70
• Above: 0.7213, 0.7440, 0.7664 and 0.7770

OANDA’s Open Positions Ratio

AUD/USD ratio is unchanged on Thursday, consistent with the lack of movement from the pair. Long positions continue to have a solid majority (60%), indicative of trader bias in favor of the Australian dollar moving to higher levels.

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.