AUD/USD – Sharp Losses as Australian Home Loans Disappoints

The Australian dollar continues to lose ground against its US counterpart and has given up the gains accumulated early in the week. AUD/USD is trading in the mid-0.90 level in Friday’s European session. On Thursday, US employment numbers disappointed, while Australia’s employment data was mixed. In Friday’s releases, Australian Home Loans, a key indicator, climbed to 1.8%, but this fell short of the estimate of 2.3%. There are two key US releases as we wrap up the week – PPI and UoM Consumer Sentiment.

On Wednesday, the US dollar took a hit courtesy of the Federal Reserve, and was broadly weaker against the major currencies as a result. The minutes indicated that Federal Reserve policymakers remain deeply divided over when to scale down the current round of QE, whereby the Fed purchases $85 billion in assets each month. About half of the Fed policymakers favor scaling down QE before the end of 2013, while others feel that the employment market is still too fragile for the Federal Reserve to take any action. The dollar continued to lose ground as Federal Reserve chair Bernanke gave a speech in which he said that the Fed would maintain a loose monetary policy for the foreseeable future, and stated that the Fed would not taper QE before the unemployment rate dropped to 6.5%.

After a couple of solid readings, US Unemployment Claims looked weak, rising to 360 thousand. This was well above the estimate of 342 thousand, and was the highest level since mid-May. Given the turbulence in the markets over whether the Federal Reserve will scale down QE, US employment releases will remain under the market microscope, as stronger employment data will be needed before the Fed acts to tighten QE.

Australian Employment Change looked good, as the indicator jumped from 1.1 thousand to 10.3 thousand in June. The markets had expected a negligible gain of 0.3 thousand. However, full-time positions actually decreased, while part-time jobs posted gains. The Unemployment Rate climbed from 5.5% to 5.7%, edging above the estimate of 5.6%. This is the highest rate in almost four years, and points to continuing weakness in the labor market.

AUD/USD for Friday, July 12, 2013

AUD/USD July 12 at 11:55 GMT

AUD/USD 0.9037 H: 0.9188 L: 0.9024

AUD/USD Technical

With the Aussie dropping sharply on Friday, we start at lower levels. AUD/USD is facing resistance at 0.9071. This is followed by stronger resistance at 0.9135. On the downside, there is weak support at the critical 0.9000 line. This is followed by support at 0.8916, which was last tested in September 2010.

• Current range: 0.9000 to 0.9071

Further levels in both directions:

• Below: 0.9000, 0.8916, 0.8747 and 0.8578
• Above: 0.9071, 0.9135, 0.9221, 0.9328, 0.9405 and 0.9541

OANDA’s Open Positions Ratio

AUD/USD ratio continues to point to movement towards long positions. This is not reflected in the current movement of the pair, as the dollar has recovered from Wednesday’s losses and continues to post gains. The ratio continues to be dominated by long positions, indicating a strong bias towards AUD/USD reversing its current direction and moving upwards.

With the Aussie again weakening, the significant 0.90 level is back within striking distance. Will the pair test this level? We could see further volatility from AUD/USD on Friday, as the US releases key inflation and consumer confidence numbers.

AUD/USD Fundamentals

• 1:00 Australian Home Loans. Estimate 2.3%. Actual 1.8%
• 12:30 US PPI. Estimate 0.5%.
• 12:30 US Core PPI. Estimate 0.2%.
• 13:55 US Preliminary UoM Consumer Sentiment. Estimate 85.3 points.
• 13:55 US Preliminary UoM Inflation Expectations. Estimate 3.1%.
• 15:00 US FOMC Member James Bullard Speaks.

*Key releases are highlighted in bold

*All release times are GMT

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