AUD/USD – Australian Dollar Flat, CB Leading Index Improves

The Australian dollar is showing little movement on Monday, continuing the lack of activity which characterized much of last week. On the release front, it’s a quiet start to the trading week. US Flash Manufacturing PMI dipped to 50.5 points, below expectations. In Australia, CB Leading Index improved to 0.1%, after three straight declines. On Tuesday, the US releases New Home Sales while Australia will publish Construction Work Done.

The Australian dollar remains under pressure, posting losses in the past four weekly sessions. Last week, the RBA minutes hinted at another rate cut, as inflation levels remain stubbornly low. The RBA noted its concern over weak wage growth, and last week’s wage growth report will only exacerbate those worries. The Wage Price Index posted a gain of just 0.4%, its lowest gain in more than 9 years. This soft number is reflective of very low inflation levels, which could prod the RBA to make another rate cut in August. We’re unlikely to see any moves prior to August, since the government has called an election in early July.

Last week’s Federal Reserve minutes were more hawkish than expected, resulting in strong volatility in the global currency markets. The minutes indicated that a June rate hike remains firmly on the table, and the currency markets have reacted with strong volatility. According to the minutes, the Fed wants to see stronger growth in the second quarter as well as better numbers from the inflation and employment fronts. If this is achieved, the Fed said it “likely would be appropriate” to raise rates at the June meeting. This message is somewhat hawkish in comparison to recent statements by Fed chair Janet Yellen, which were more cautious about the strength of the US economy. The markets were skeptical that June would be a “live meeting”, with most analysts assuming that the Fed would continue to sit on the sidelines. The minutes have drastically changed market sentiment, however, since it’s clear that the June meeting will be a crucial one, as it could mark the Fed’s first interest rate hike this year. With the Fed saying that a key factor in a rate hike decision will be the strength of the US economy, upcoming major economic indicators will be under the market microscope, particularly inflation and employment numbers.

AUD/USD Fundamentals

Monday (May 23)

• 6:15 US FOMC Member James Bullard Speaks
• 9:45 US Flash Manufacturing PMI. Estimate 51.0. Actual 50.5
• 10:30 Australian CB Leading Index. Actual 0.1%
• 23:05 RBA Governor Glenn Stevens Speaks

Upcoming Key Events

Tuesday (May 24)

• 10:00 US New Home Sales. Estimate 521K
• 21:30 Australian Construction Work Done. Estimate -1.4%

*Key releases are highlighted in bold

*All release times are EDT

AUD/USD for Monday, May 23, 2016

AUD/USD May 23 at 10:30 EDT

Open: 0.7224 Low: 0.7196 High: 0.7260 Close: 0.7215

AUD/USD Technical

• AUD/USD posted slight gains in the Asian session but retracted in European trade. The pair has shown limited movement in the North American session.
• 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 and 0.6916
• Above: 0.7251, 0.7339, 0.7472 and 0.7560

OANDA’s Open Positions Ratio

AUD/USD ratio is unchanged on Monday, consistent with the lack of movement of AUD/USD. Long positions have a strong majority (62%), 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.