AUD/USD – Aussie Rises as US Durables, Housing Softens

The Australian dollar is steady on Friday, after posting strong gains a day earlier. In the European session, the pair is trading at 0.7080. On the release front, Australian PPI and Private Sector Credit both missed their estimates. In the US, today’s key event is Advance GDP for the fourth quarter, which is expected to show a gain of 0.8%. This forecast is much softer than the Final GDP reading for Q3, which posted an impressive gain of 2.0%.

The Bank of Japan has not been in the headlines of late, but that changed on Thursday as the Japanese central bank shocked the markets by adopting negative interest rates. BoJ Governor Haruhiko Kuroda has warned in recent weeks that the BoJ would step in with further monetary easing if necessary, and those market players who assumed that Kuroda was posturing were in for a rude surprise on Thursday. The BoJ has been largely unsuccessful at propping up inflation levels, and this has hampered the weak economy. Will this monetary move help matters? The ECB has implemented negative rates for some time, but inflation levels have not responded. What did react in a hurry to the central bank’s dramatic move was the yen, as USD/JPY has surged to its highest levels since late December. Meanwhile, consumer and inflation numbers are mired at low levels. Household Spending posted a dismal reading of -4.4%, a third consecutive decline. Tokyo Core CPI came in at -0.1%, short of the forecast of +0.1%. This index, the primary Japanese inflation indicator, has not shown a gain above 0.1% since April 2015, underscoring the dismal inflation picture.

There were no surprises from the Federal Reserve earlier this week, as the US central bank stayed the course and maintained the benchmark rate at 0.25%. The Fed statement was dovish in tone, as policymakers noted that there are soft spots in the economy, such as consumer spending and exports. The inflation picture remains problematic, with the Fed saying that inflation levels will remain low, and may not reach the target of 2.0% until 2018. At the same time, the Fed emphasized that the US labor market remains strong. Will we see another rate hike in March? The Fed has not provided any strong hints on its next move, so the markets will have to show some patience. Given the Fed’s continuing concerns about a lack of inflation, it’s hard to foresee another rate hike in March absent a strong improvement in key US indicators. On the release front, US durable goods reports were dismal in December. Durable Goods dropped 1.2%, while Core Durables plunged 5.1%, well off the estimate of a 0.6% decline. These poor numbers underscore ongoing weakness in the US manufacturing sector, which has not improved despite positive economic conditions. There was more bad news on the housing front, as Pending Home Sales posted a negligible gain of 0.1%, well off the estimate of 1.0%.

AUD/USD Fundamentals

Thursday (Jan. 28)

• 19:30 Australian PPI. Estimate 0.6%. Actual 0.3%65
• 19:30 Australian Private Sector Credit. Estimate 0.6%. Actual 0.5%

Friday (Jan. 29)

• 8:30 US Advance GDP. Estimate 0.8%
• 8:30 US Advance GDP Price Index. Estimate 1.2%
• 8:30 US Employment Cost Index. Estimate 0.6%
• 8:30 US Goods Trade Balance. Estimate -60.0B
• 9:45 US Chicago PMI. Estimate 45.4 points
• 10:00 US Revised UoM Consumer Sentiment. Estimate 93.1 points
• 10:00 US Revised UoM Inflation Expectations

*Key events are in bold

*All release times are EST

AUD/USD for Friday, January 29, 2016

AUD/USD January 29 at 6:50 EST

AUD/USD Open: 0.7082  Low: 0.7067  High: 0.7141  Close: 0.7086

AUD/USD Technical

• The pair posted slight gains in the Asian session but has given up these gains in European trade
• The round number of 0.7100 is a weak resistance line and was tested earlier. Will the pair break through this barrier?
• 0.7063 has switched to a support role following strong gains by the pair on Thursday
• Current range: 0.7063 to 0.7100

Further levels in both directions:

• Below: 0.7063, 0.6931, 0.6848 and 0.6754
• Above: 0.7100, 0.7213 and 0.7385

OANDA’s Open Positions Ratio

AUD/USD ratio remains close to an even split between long and short positions, 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.