AUD/USD – Aussie Punches Past 75, Australian CPI Next

The Australian dollar has posted gains on Tuesday, as AUD/USD is trading slightly above the 0.75 line. On the release front, it’s a busy day, so traders should be prepared for possible volatility from the pair during the North American session. The US will release its first key events of the week. CB Consumer Confidence is expected to drop to 95.6 points, while New Home Sales is expected to improve to 560 thousand. Australia will release CPI for the second quarter,with the estimate standing at 0.5%. On Wednesday, the US releases durable goods orders and the FOMC policy statement.

The markets are awaiting a highly-anticipated CPI reading from Australia later on Tuesday. The indicator, released each quarter, could be a determining factor as to whether the RBA cuts rates next week. The RBA caught the markets flat-footed in May, when it lowered rates from 2.00% to 1.75% in response to a dismal CPI release in the first quarter of -0.2%. Most analysts had projected that the bank would maintain rate levels. The markets can be expected to be more vigilant this time around. If CPI falls short of expectations, the likelihood that the RBA will again lower rates in order to prop up inflation levels will increase.

The Federal Reserve will be in the spotlight this week, following decisions by the BoE and ECB not to lower interest rates. The Fed meets for a policy meeting on Wednesday and is widely expected to maintain current interest rate levels of 0.25% – 0.50%. However, with the US posting some solid numbers in the past few weeks, speculation has risen that the bank could raise rates before the end of the year. Another rate hike will be data-dependent, so if key indicators beat expectations, the likelihood of a rate hike will continue to increase. Still, there are some key factors which mitigate against a hike in the next few months. First, inflation remains stuck at low levels, well short of the Fed’s target of around 2 percent. Fed policymakers will be hesitant to raise rates if inflation is not projected to point upwards. Second, most of the recent data is from June, and does not fully take into account the Brexit vote on June 23. Fed members have expressed concern about the economic fallout from Brexit, and will want to review releases coming out in August and September in order to gauge the effects of Brexit. Meanwhile, G-20 finance ministers met in China on the weekend. The group acknowledged that Brexit vote would add uncertainty to global economic conditions, but expressed confidence that this challenge would be met. The G-20 also stated it would refrain from competitive devaluations, an issue that remains a source of contention between Japan and the United States regarding the Japanese yen.

AUD/USD Fundamentals

Tuesday (July 26)

• 9:00 US S&P/CS Composite-20 HPI. Estimate 5.6%
• 9:45 US Flash Services PMI. Estimate 51.2
• 10:00 US CB Consumer Confidence. Estimate 95.6
• 10:00 US New Home Sales. Estimate 560K
• 10:00 US Richmond Manufacturing Index. Estimate -4
• 21:30 Australian CPI. Estimate 0.4%
• 21:30 Australian Trimmed Mean CPI. Estimate 0.4%

Upcoming Key Events

Wednesday (July 27)

• 8:30 US Core Durable Goods Orders. Estimate 0.3%
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <0.50%

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Tuesday, July 26, 2016

AUD/USD July 26 at 8:10 EDT

Open: 0.7474 High: 0.7538 Low: 0.7461 Close: 0.7531

AUD/USD Technical

• AUD/USD posted considerable gains in the Asian session and has shown slight upward movement in European trade
• 0.7440 has strengthened in support following gains by AUD/USD
• 0.7560 is a weak resistance line and could be tested in the North American session
• 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 is unchanged on Tuesday. Long positions retain a majority (55%), indicative of trader bias towards AUD/USD continuing to post gains.

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.