AUD/USD – Aussie Punches Above 76 as RBA Lowers Rates

The Australian dollar has recorded sharp gains on Tuesday. In the North American session, AUD/USD is trading just above the 0.76 level. On the release front, it’s been a busy day in Australia. The RBA lowered rates to 1.50%, while Australian key numbers were soft. Building Approvals posted a sharp drop of 2.9% and the trade deficit was larger than expected. In the US, there are no key events on the schedule. Personal Spending posted a gain of 0.4%, edging above the estimate of 0.3%. On Wednesday, the US releases two key events – ISM Non-Manufacturing PMI and ADP Nonfarm Employment Change.

The RBA has caught the market flat-footed on more than one occasion, but there were no surprises on Tuesday when the RBA lowered interest rates. The quarter-point drop, which lowered rates from 1.75% to an all-time low of 1.50%, was widely expected. Still, the response of the Australian dollar may have surprised more than a few market players, as AUD/USD has jumped 100 points since the RBA’s announcement. The bank cut rates for the second time since May, and analysts expect further cuts – JPMorgan Chase and Morgan Stanley are both projecting that rates will be at 1 percent by the second quarter of 2017. The new Australian government is reluctant to embark on a large spending program and jeopardize its AAA credit rating, so the RBA appears to be on its own in the fight against deflation. The bank is also concerned about the strength of the Australian dollar, which has jumped close to 10 percent since mid-January. Lowering interest rates is one tool to keep the Aussie’s climb in check, as lower rates make the currency less attractive to investors. Meanwhile, Australian Building Approvals and Trade Balance were dismal, but the markets showed little interest as the RBA rate cut stole the show.

The US dollar was broadly lower on Friday, following a surprisingly soft US GDP report. The Australian dollar took advantage and gained 80 points. US Preliminary GDP for the second quarter was projected at 2.6%, but posted a much smaller gain of 1.6%. The soft reading not only pushed the dollar lower, but has dampened enthusiasm regarding a rate hike by the Federal Reserve, which last week stayed on the sidelines yet again. On Monday, FOMC William Dudley, a close ally of Janet Yellen, said that the Brexit fallout posed a risk to the US economy and urged the Fed to proceed with caution before raising interest rates. The US will release wage growth and nonfarm payrolls later in the week, and these key employment numbers will be carefully monitored by the Fed as it mulls over a possible rate hike. If these releases do not meet expectations, the likelihood of a move in September will sharply decrease.

AUD/USD Fundamentals

Monday (August 1)

• 21:30 Australian Building Approvals. Estimate 0.9%. Actual -2.9%
• 21:30 Australian Trade Balance. Estimate -2.00B. Actual -3.20B

Tuesday (August 2)

• 00:30 Australian Cash Rate. Estimate 1.50%. Actual 1.50%
• 00:30 Australian Rate Statement
• 8:30 US Core PCE Price Index. Estimate 0.1%. Actual 0.1%
• 8:30 US Personal Spending. Estimate 0.3%. Actual 0.4%
• 8:30 US Personal Income. Estimate 0.3%. Actual 0.2%
• All Day – US Total Vehicle Sales. Estimate 17.1M

Upcoming Key Events

Wednesday (August 3)

• 8:15 ADP Non-Farm Employment Change. Estimate 171K
• 10:00 US ISM Non-Manufacturing PMI. Estimate 56.0
• 21:30 Australian Retail Sales. Estimate 0.3%

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Tuesday, August 2, 2016

AUD/USD August 2 at 10:50 EDT

Open: 0.7526 High: 0.7637 Low: 0.7462 Close: 0.7609

AUD/USD Technical

• AUD/USD posted sharp losses in the Asian session but quickly recovered. The pair posted sharp gains in European trade and has shown limited movement in the North American session
• 0.7560 has some breathing room in support following sharp gains by AUD/USD on Tuesday
• 0.7701 is a strong resistance line
• Current range: 0.7560 to 0.7701

Further levels in both directions:

• Below: 0.7560, 0.7440, 0.7339 and 0.7251
• Above: 0.7701, 0.7835 and 0.7938

OANDA’s Open Positions Ratio

AUD/USD ratio is almost unchanged on Tuesday. Long and short positions are close to an even split, indicating a lack of trader bias as to what direction AUD/USD 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.