AUD/USD – Aussie Edges Higher Ahead of Inflation Report

The Australian dollar is subdued on Thursday, as AUD/USD is currently trading at 0.7530. On the release front, Australian Import Prices declined 1.0%, well off the estimate of a 1.6% gain. Later in the day, Australia releases PPI, an important inflation indicator. The markets are expecting a small gain of 0.2%. In the US, there are just two releases, highlighted by Unemployment Claims. The indicator is expected to rise to 261 thousand.  On Friday, the US releases Advance GDP, with the markets expecting a strong gain of 2.6%. We’ll also get a look at UoM Consumer Sentiment, which is expected to drop to 90.3 points.

The markets were keeping a close eye on Australia’s CPI release on Wednesday. The index rebounded nicely in the second quarter, posting a gain of 0.4%, compared to a decline of 0.2% in the first quarter. It’s not clear how the RBA, which will set interest rates next week, plans to respond to the CPI release. The markets have priced in a 50% chance that the bank will lower rates, and an unexpected CPI reading could have swayed the odds of a rate cut. However, the reading matched the forecast, so the question of whether the RBA will act remains up in the air. PPI, which measures inflation in the manufacturing sector, is also struggling. The index declined 0.2% in the first quarter, marking its worst showing since 2012. The annual inflation rate stands at just 1.0%, well below the RBA’s stated target of 2% to 3%. Will this be enough of a factor to prod the RBA into action? We’ll have to wait and see. Many economists see interest rates steadily declining, with Capital Economics chief analyst Paul Dales projecting that rates could drop as low as 1%.

There were no dramatic moves by the Federal Reserve, which concluded its policy meeting on Wednesday. The bank continued to hold the course on interest rates, maintaining levels at 0.25% in a 9-1 vote. The Fed statement sounded upbeat, saying that risks to the economy have receded and the employment market is getting tighter. The Fed added that it continues to monitor inflation levels and noted that the housing sector had improved. Will the Fed make a move and raise rates in September? It appears that the Fed could go either way, and policymakers will make a decision at the September meeting based on the strength of US data. This means that key US numbers, such as Friday’s Advance GDP report, will be under the market microscope, and unexpected readings could lead to strong volatility in the currency markets.

AUD/USD Fundamentals

Wednesday (July 27)

• 21:30 Australian Import Prices. Estimate 1.6%. Actual -1.0%

Thursday (July 28)

• 8:30 US Unemployment Claims. Estimate 261K
• 10:30 US Natural Gas Storage. Estimate 29B
• 21:30 Australian PPI. Estimate 0.2%
• 21:30 Australian Private Sector Credit. Estimate 0.5%

Upcoming Key Events

Friday (July 29)

• 8:30 US Advance GDP. Estimate 2.6%
• 10:00 US Revised UoM Consumer Sentiment. Estimate 90.2

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Thursday, July 28, 2016

AUD/USD July 28 at 6:40 EDT

Open: 0.7517 High: 0.7549 Low: 0.7505 Close: 0.7531

AUD/USD Technical

• AUD/USD was flat in the Asian session. The pair has posted small gains in European trade
• 0.7440 is providing strong support
• 0.7560 is under pressure as resistance
• Current range: 0.7440 to 0.7560

Further levels in both directions:

• Below: 0.7440, 0.7339, 0.7251 and 0.7105
• Above: 0.7560, 0.7701 and 0.7835

OANDA’s Open Positions Ratio

AUD/USD ratio has shown movement towards short positions. Currently, long positions retain a majority (54%), indicative of trader bias towards AUD/USD continuing to gain ground.

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.