AUD/USD – Aussie Gains as Building Approvals Jumps

The Australian dollar has posted strong gains on Wednesday, as the pair is trading at the 0.71 line early in the North American session. On the release front, Australian Building Approvals surged 9.2%, well above expectations. Australia’s trade deficit widened to A$3.54 billion, which was much higher than the forecast. Later on Wednesday, we’ll get a look at NAB Quarterly Business Confidence. On Thursday, market focus will shift to the RBA Rate Statement and Retail Sales, two key events which could move the markets.

Australian Building Approvals, a key indicator which tends to show sharp fluctuations, bounced back in December with an excellent gain of 9.2%. This excellent figure crushed the estimate of 4.8%. Trade Balance could not keep pace, as the trade deficit ballooned to A$3.54 billion, much higher than the estimate of A$2.45 billion. This marked the highest trade deficit in eight months.

As widely expected, the RBA maintained interest rates at the round number of 2.00%. The RBA sounded optimistic about the local economy in its rate statement, noting “there were reasonable prospects for continued growth”. RBA Governor Glenn Stevens added that continuing low inflation could lead to easier monetary policy if demand increased. The RBA has adopted a wait-and-see attitude to recent market turmoil and China slowdown. The central bank has often made reference to the Australian dollar, but sufficed this time with a rather bland statement that “the exchange rate has continued its adjustment to the evolving economic outlook”. Although the RBA didn’t make a move this time around, a rate cut later in 2016 remains a strong possibility. The markets will be looking for more clues from the upcoming rate statement regarding the RBA’s monetary plans in the next few months.

A robust US labor market in the second half of 2015 helped convince the Federal Reserve to raise interest rates in December, but employment numbers have been lukewarm in early 2016. Next up is ADP Nonfarm Employment Change, with the official Nonfarm Payrolls report to follow on Friday. The markets are braced for a weak ADP report, with the estimate standing at just 193 thousand for January, compared to 257 thousand a month earlier. If the indicator does indeed slip badly, traders can expect the dollar to take a hit during the North American session. Employment numbers will be closely monitored by the Fed, which will have to decide if the economy is ready for another rate hike in March. In the heady days following the Fed’s historic rate hike, there was talk of up to four rate hikes in 2016, but this appears unlikely, given current economic conditions and the collapse of oil prices.

AUD/USD Fundamentals

Tuesday (Feb. 2)

• 19:30 Australian Building Approvals. Estimate 4.8%
• 19:30 Australian Trade Balance. Estimate -2.45B

Wednesday (Feb. 3)

• 8:15 US ADP Nonfarm Employment Change. Estimate 193K
• 9:45 US Final Services PMI. Estimate 53.7 points
• 10:00 US ISM Non-Manufacturing PMI. Estimate 55.1 points
• 10:30 US Crude Oil Inventories. Estimate 3.7M
• 19:30 Australian NAB Quarterly Business Confidence

Upcoming Key Events

Thursday (Feb. 4)

• 8:3o US Unemployment Claims. Estimate 279K
• 19:30 RBA Monetary Policy Statement
• 19:30 Australian Retail Sales. Estimate 0.5%

*Key events are in bold

*All release times are EST

AUD/USD for Wednesday, February 3, 2016

AUD/USD February 3 at 9:20 EST

AUD/USD  Open: 0.7025 Low: 0.7002  High: 0.7107  Close: 0.7103

AUD/USD Technical

• The pair posted losses late in the Asian session and early in European trade
• 0.7100 has switched to support following strong gains by the pair. This weak line could break during the North American session
• 0.7213 is a strong resistance line
• Current range: 0.7100 to 0.7213

Further levels in both directions:

• Below: 0.7100, 0.7063, 0.6931 and 0.6848
• Above: 0.7213, 0.7385 and 0.7489

OANDA’s Open Positions Ratio

AUD/USD ratio is unchanged on Wednesday, as long and short positions are evenly split. This is indicative of a lack of trader bias as to which direction the pair will take next.

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.