AUD/USD – Aussie Shrugs off Weak Capex, US Durable Goods Rebound

The Australian dollar has ticked higher on Thursday, as the pair trades slightly above the 0.72 line. On the release front, Australian Private Capital Expenditure posted a sharp decline of 5.2%, below expectations. Over in the US, Core Durable Goods Orders posted a gain of 0.4%, above the forecast. Unemployment claims fell to 268 thousand, beating expectations. On Friday, the US releases two key indicators, Preliminary GDP and UoM Consumer Sentiment.

US numbers looked sharp on Thursday. Core Durable Goods Orders rebounded with a gain of 0.4%, edging above the forecast of 0.3%. Durable Goods Orders was excellent, jumping 3.4%, crushing the estimate of 0.3%. There was more good news from unemployment claims, which dropped to 268 thousand, compared to the estimate of 275 thousand.

Australian releases have been struggling this week, but the Australian dollar has managed to hold its own, trading at the 0.72 level. Construction Work Done, an important construction indicator, declined 2.6% in the first quarter, marking a third consecutive quarter of contraction. This was followed by a very soft Private Capital Expenditure, which is also published every quarter. The indicator came in at -5.2%, compared to an estimate of -3.2%. With the RBA holding a policy meeting on June 7, key economic data will play an important role as to whether the RBA cuts rates for a second  straight month or remains on the sidelines.

As little as a week ago, talk of a June rate hike was off the radar, but that has quickly changed after last week’s Fed minutes. The report was more hawkish than expected, and this resulted in strong volatility in the currency markets. It has also renewed market speculation about a June rate hike. Odds of a rate hike in June increased to 40% on Wednesday, compared to just 4% one week ago. Still, the Fed will be hard-pressed to raise rates if key indicators don’t show improvement, particularly inflation numbers. On Monday, 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. The Fed will be closely monitoring key events this week, notably GDP and UoM Consumer Sentiment.

AUD/USD Fundamentals

Wednesday (May 25)

• 21:30 Australian Private Capital Expenditure. Estimate -3.2%. Actual -5.2%

Thursday (May 26)

• Day 1 – G7 Meetings
• 6:10 US FOMC Member James Bullard Speaks
• 8:30 US Core Durable Goods Orders. Estimate 0.3%. Actual 0.4%
• 8:30 US Unemployment Claims. Estimate 275K. Actual 268K
• 8:30 US Durable Goods Orders. Estimate 0.3%. Actual 3.4%
• 9:00 RBA Assistant Governor Guy Debelle Speaks
• 10:00 US Pending Home Sales. Estimate 0.6%
• 10:30 US Natural Gas Storage. Estimate 67B
• 12:00 US FOMC Jerome Powell Speaks
• 18:30 RBA Assistant Governor Guy Debelle Speaks 

Upcoming Key Events

Friday (May 27)

• 8:30 US Preliminary GDP. Estimate 0.8%
• 10:00 US Revised UoM Consumer Sentiment. Estimate 95.7

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Thursday, May 26, 2016

AUD/USD May 26 at 8:30 EDT

Open: 0.7188 Low: 0.7148 High: 0.7229 Close: 0.7219

AUD/USD Technical

• AUD/USD posted small gains in the Asian session and has been choppy in European trade
• 0.7160 is providing support
• There is resistance at 0.7251
• 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 showing slight movement towards long positions on Thursday. Long positions have a strong majority (63%), 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.