AUD/USD – Aussie Jumps to 9-month Highs as Yellen Talks Dovish

The Australian dollar has posted slight gains on Wednesday, as AUD/USD continues its rally this week. The pair is trading at 0.7660 in the European session. In economic news, Australia releases HIA New Home Sales and Private Sector Credit early on Thursday. In the US, we’ll get a look at ADP Nonfarm Employment Change, with the markets braced for a reading of 195 thousand, well below the previous reading of 214 thousand.

The Australian dollar continues to rally. On Tuesday, AUD/USD climbed to its highest level since June 2015. The Aussie climbed after Janet Yellen surprised the markets with a surprisingly dovish speech in New York. Yellen said the Fed would continue its cautious approach towards monetary tightening, given the turbulent global economy and risks due to the Chinese slowdown. Yellen downplayed higher inflation levels, which in January reached 1.7 percent, the highest in almost two years. This reading is not far from the Fed’s target of 2.0 percent and some Fed members have gone on record saying that the Fed should raise rates before inflation pushes above the 2.0 percent threshold. At the same time, Yellen acknowledged that there were encouraging signs in the US economy, including a strong labor market. Her comments dampened recent speculation about an April rate hike, which was precipitated by a flurry of hawkish comments from Fed officials. It will be interesting to see if Yellen’s cautious assessment will be reinforced or challenged by Fed members in the coming days.

US economic growth in the fourth quarter was respectable, but there are signs that we could see softer numbers for the first quarter of 2016. Earlier this week, the Atlanta Fed downgraded its forecast for Q1 from 1.4 percent to 0.6 percent. The original forecast, released just last week, was lowered in response to a downgraded forecast of personal income and outlays by the US Bureau of Economic Analysis. US Final GDP for the fourth quarter rose 1.4 percent, above the estimate of 1.0 percent, but lower than the 2.0 percent gain in the third quarter. If US economic activity did in fact weaken in Q1, we could see the US dollar lose ground against its major rivals.

The Australian dollar is sensitive to key Chinese releases, as the Asian giant is Australia’s largest trading partner and most important export market. Traders should keep a close eye on Chinese manufacturing PMIs which will be released early Friday. With both indicators expected to show contraction, the Aussie could lose ground against the US dollar if these indicators don’t beat expectations. The Chinese slowdown in early 2016 has caused turmoil in the global markets, but the Aussie has sparkled in the month of March, gaining over 500 points against the US dollar.

AUD/USD Fundamentals

Wednesday (March 30)

• 8:15 ADP Nonfarm Employment Change. Estimate 195K
• 10:30 US Crude Oil Inventories. Estimate 3.1M

Upcoming Key Events

Thursday (March 31)

• 8:30 US Unemployment Claims. Estimate 266K

*Key releases are highlighted in bold

*All release times are DST

AUD/USD for Wednesday, March 30, 2016

AUD/USD March 30 at 11:10 DST

AUD/USD  Open: 0.7635 Low: 0.7614 High: 0.7698 Close: 0.7662

AUD/USD Technical

• AUD/USD was flat in the Asian session and has posted gains in European trade
• 0.7678 is a weak resistance line. It was tested earlier today and remains under pressure
• 0.7560 is providing support
• Current range: 0.7560 to 0.7678

Further levels in both directions:

• Below: 0.7560, 0.7472, 0.7385 and 0.7213
• Above: 0.7678, 0.7796 and 0.7913

OANDA’s Open Positions Ratio

The AUD/USD ratio remains unchanged this week. Short positions have a majority (55%), indicative of trader bias towards AUD/USD reversing directions and losing 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.