AUD/USD – Aussie Subdued as Brexit Shock Subsides

The Australian dollar has posted small gains on Wednesday, continuing the trend we saw in the Tuesday session. AUD/USD is trading in the mid-0.74 range in the North American session. On the release front, Australian HIA New Home Sales posted a sharp decline of 4.4%. Later in the day, Australian Private Sector Credit will be released. Over in the US, today’s highlight is Pending Home Sales. After a sharp gain in April, the estimate for May stands at -0.9%. On Thursday, the US releases Unemployment Claims.

In the US, GDP was revised upwards in the first quarter. Final GDP for the first quarter posted a gain of 1.1%, above the estimate of 1.0%. This reading was stronger than the Preliminary GDP reading of 0.8%. Although the upward revision was welcome news, the revised GDP report marked the weakest gain in a year. On the consumer front, CB Consumer Confidence impressed by climbing to 98.0 points, easily beating the forecast of 93.2 points. Is US consumer confidence strengthening? It’s not clear, as last week’s UoM Consumer Sentiment report dropped to 93.4 points and missed expectations. Consumer confidence is closely linked to consumer spending, and we’ll get a look at Personal Spending later on Wednesday.

The aftershocks of the Brexit vote continuing to reverberate in the Britain and Europe, but the dust has begun to settle, as markets have stabilized and the British pound has steadied. Political leaders on both sides of the Channel will have to pick up the pieces and deal with the radical new landscape, which was unthinkable just a few months ago – that of a European Union without Britain. The vote to leave the EU, which stunned the markets and the public, has caused deep instability in Europe and the UK and wiped out a staggering $3 trillion from global stock markets. The currency and commodity markets have been volatile. Risky assets like the Australian dollar lost ground in response to Brexit, while gold has surged higher. Chancellor of the Exchequer George Osborne and Bank of England Governor Mark Charney have sought to reassure the markets and the public that the situation is under control, but is it? The political picture is fluid, as the Conservatives must choose a new leader, the Labor Party is in turmoil and general elections are likely later in the year. On the financial front, the pound and the markets have taken a beating and London’s position as a world financial center has been shaken. The uncertainty is not going to disappear anytime soon, so traders can expect further volatility in the currency markets.

British Prime Minister Cameron, a staunch supporter of the EU, finds himself in the unenviable position of explaining the Brexit decision to fuming Europeans. Cameron arrived in Brussels for an EU Summit on Tuesday and the meeting was fraught with tension, dismay and anger. Clearly, the “divorce of the “century” between Britain and the EU could be rancorous and messy. Cameron has asked for time to prepare Britain’s exit and wants to renew “productive” relations with Europe. However, the Europeans are in no mood for hugs and kisses on both cheeks. German Chancellor Merkel said that the UK could not “cherry pick” and that a relationship with Europe entailed obligations and not just rights – in other words, the Europeans are rejecting “half membership”. As well, Europe wants Britain to exit as soon as possible, in order to minimize the uncertainty and instability caused by the Brexit vote. French President Hollande went on the attack, saying that London should no longer remain a center for clearing euro trades. This market is worth trillions of euros in currency and derivative deals and such a move would be a severe blow to London’s financial sector. Already, the European Banking Authority has announced it is leaving London and moving to Paris or Frankfurt.

AUD/USD Fundamentals

Tuesday (June 28)

• 21:00 Australian HIA New Home Sales. Actual -4.4%

Wednesday (June 29)

• 8:30 US Core PCE Price Index. Estimate 0.2%
• 8:30 US Personal Spending. Estimate 0.4%
• 8:30 US Personal Income. Estimate 0.3%
• 10:00 US Pending Home Sales. Estimate -0.9%
• 10:30 US Crude Oil Inventories. Estimate -2.3M
• 16:30 US Bank Stress Test Results
• 21:30 Australian Private Sector Credit. Estimate 0.5%

Upcoming Key Events

Thursday (June 30)

• 12:30 US Unemployment Claims. Estimate 267K

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Wednesday, June 29, 2016

AUD/USD June 29 at 9:10 EDT

Open: 0.7402 Low: 0.7380 High: 0.7445 Close: 0.7443

AUD/USD Technical

• AUD/USD was flat in the Asian session and posted slight gains in the European session. The pair is steady in the North American session.
• There is weak resistance at 0.7472
• 0.7339 is providing strong support
• Current range: 0.7339 to 0.7472

Further levels in both directions:

• Below: 0.7339, 0.7251 and 0.7160
• Above: 0.7472, 0.7612, 0.7739 and 0.7835

OANDA’s Open Positions Ratio

AUD/USD ratio is almost unchanged on Wednesday, consistent with the lack of significant movement by AUD/USD. Long positions have a majority (58%), indicative of trader bias towards AUD/USD continuing to move to higher levels.

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.