AUD/USD – Aussie Higher on Strong Housing Report

The Australian dollar has posted gains on Tuesday, as the pair trades at 0.7240. On the release front, Australian Building Approvals posted a gain of 3.0%, easily beating expectations. Australia will release GDP later in the day. In the US, today’s key release is CB Consumer Confidence. The markets are expecting the indicator to improve to 96.1 points. On Wednesday, the US releases ISM Manufacturing PMI. Australia will publish two key indicators – Retail Sales and Trade Balance.

Australian Building Approvals posted a third straight gain in March, climbing 3.0%. The reading surprised the markets, which had expected a decline of 3.1%. Australia GDP, which can be viewed as an economic report card, will be closely monitored and an unexpected reading could affect the direction of AUD/USD. The estimate for the fourth quarter stands at 0.6%, the same gain recorded in the third quarter. With the RBA making a rate announcement on June 7, the GDP report could have a strong impact as to whether the RBA lowers interest rates next week. The RBA surprised the markets with a rate cut in early May, lowering rates from 2.00% to 1.75%. The central bank continues to hint that it will continue cutting rates, although it may choose not to take any action before Australians go to the polls in July.

US indicators wrapped up last week on a positive note. Preliminary GDP, which can be viewed as an economic report card, posted a gain of 0.8%, matching the forecast. This was an improvement above Advanced GDP, which came in at 0.5%. Still, the economy slowed down considerably compared to the fourth quarter of 2015. The export sector has been hurt by the strong US dollar and weak global demand. Oil prices remain low, which has taken a sharp toll on the oil industry. Elsewhere, the UoM Consumer Sentiment report improved in April, climbing to 94.7 points. This marked the indicator’s highest level in 11 months, although it was short of the estimate of 95.7 points. The dollar responded positively to these releases on Friday, gaining about 80 points against the euro.

The Fed minutes and comments from Fed chair Janet Yellen have renewed speculation that the Fed may press the rate trigger this summer, and this has bolstered the US dollar. The minutes were more hawkish than expected, resulting in strong volatility in the currency markets. Odds of a rate hike in June have sharply increased, but the Fed will be hard-pressed to raise rates if key indicators don’t show improvement, particularly inflation numbers. Last week, FOMC member John Williams reiterated that he expected the Fed to raise rates two or three times in 2016. However, there appears to be a gap between the hawkish message some FOMC members are sending out and market sentiment, as many analysts are projecting only one rate hike this year. The guessing game as to what the Fed has in mind is likely to continue into June, but it’s safe to say that another rate move will be data-dependent, so stronger US numbers will increase the likelihood of a quarter-point hike at the June policy meeting.

AUD/USD Fundamentals

Monday (May 30)

• 21:30 Australian Building Approvals. Estimate -3.1%. Actual 3.0%
• 21:30 Australian Current Account. Estimate -19.3B. Actual -20.8B
• 21:30 Australian Private Sector Credit. Estimate 0.5%. Actual 0.5%

Tuesday (May 31)

• 8:30 US Core PCE Price Index. Estimate 0.2%
• 8:30 US Personal Spending. Estimate 0.7%
• 8:30 US Personal Income. Estimate 0.4%
• 9:00 US S&P/CS Composite-20 HPI. Estimate 5.1%
• 9:45 US Chicago PMI. Estimate 50.8
• 10:00 US CB Consumer Confidence. Estimate 96.1
• 19:30 AIG Manufacturing Index
• 21:30 Australian GDP. Estimate 0.6%

Wednesday (June 1)

• 14:00 US ISM Manufacturing PMI. Estimate 50.5
• 21:30 Australian Retail Sales. Estimate 0.3%
• 21:30 Australian Trade Balance. Estimate -2.11B

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Tuesday, May 31, 2016

AUD/USD May 31 at 10:40 EDT

Open: 0.7194 Low: 0.7185 High: 0.7250 Close: 0.7242

AUD/USD Technical

• AUD/USD posted considerable gains in the Asian session but has leveled off in European trade
• 0.7160 has some breathing room in support as AUD/USD has moved higher
• 0.7251 is under strong pressure as resistance and could break during the North American session
• Current range: 0.7160 to 0.7251

Further levels in both directions:

• Below: 0.7160, 0.7049, 0.6916 and 0.6843
• Above: 0.7251, 0.7339 and 0.7472

OANDA’s Open Positions Ratio

AUD/USD ratio is almost unchanged on Tuesday. Long positions have a strong majority (64%), indicative of trader bias towards AUD/USD breaking out and moving higher.

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.