AUD/USD – Lower as RBA Holds Rate

We continue to see volatility from AUD/USD. The pair is down close to one cent on Tuesday, coughing up much of Monday’s gains. The Aussie took a hit as the RBA held the benchmark interest rate at 2.75%, but hinted that there was room for further cuts. In the US, major releases continue to disappoint, as ISM Manufacturing PMI missed the estimate. Today’s key event is US Trade Balance. The markets are expecting a larger deficit compared to the previous release.

The RBA did not have any surprises up its sleeve this time, and maintained the key interest rate at 2.75%. This was widely expected by the markets, but the Aussie still took a hit. The reason? The RBA was very clear in stating that there is room for further cuts. RBA Governor Glenn Stevens noted that the “inflation outlook, as currently assessed, may provide some scope for further easing, should that be required.”  The central bank has kept an easing bias in place, and we could see another cut in August, following the release of inflation numbers in late July.

The Australian dollar was more than happy to wave goodbye to the month of May. The Aussie suffered a horrendous month of May, plunging more than seven cents against the US dollar. The surging US dollar took advantage of the RBA rate cut earlier this month, lukewarm Australian data and the government’s budget which pointed to the high value of the Australian dollar as an impediment to economic growth. Weak US numbers also weighed on the risky Aussie. These factors have resulted in nervous investors shifting their funds to the safe-haven US dollar, resulting in the Australian dollar plunging in value.

In the US, we continue to see weak numbers from the key releases. Last week, unemployment, GDP and housing numbers missed their estimates, and this week started in much the same fashion, as ISM Manufacturing PMI dropped below the 50-point level. The index posted a reading of 49.0 points, missing the estimate of 50.6 points. This marked the first time in 2013 that the PMI has pointed to contraction in the manufacturing sector.

Quantitative easing has become a hot topic, as the markets ponder whether the US Federal Reserve will scale back the current round of QE. Fed policymakers, including Fed Chair Bernanke, have hinted that QE could be wound up in the next few months. However, with the US continuing to alternate between good and bad economic releases, the Fed is unlikely to act before it is convinced that the US economy is improving. Much of the volatility we are seeing from the major currency pairs can be attributed to market uncertainty about what action the Fed will take. Further hints from the Fed about scaling back QE will likely affect the currency markets.

AUD/USD for Tuesday, June 4, 2013

AUD/USD June 4 at 12:40 GMT

AUD/USD 0.9664 H: 0.9760 L: 0.9650

AUD/USD Technical

AUD/USD has reversed direction, and has lost ground in Tuesday trading. On the downside, the pair is again putting pressure on 0.9651. This line has had a busy week, and could fall if the Aussie can muster some strength. There is stronger support at 0.9541. On the upside, the pair faces resistance at 0.9727. The next resistance line is at 97.95, protecting the 0.98 level.

• Current range: 0.9651 to 0.9727

Further levels in both directions:

• Below: 0.9651, 0.9541, 0.9405, 93.28 and 92.21
• Above: 0.9727, 0.9795, 0.9907 and 1.00

OANDA’s Open Positions Ratio

AUD/USD ratio is pointing to a shift in direction, with movement towards long positions on Tuesday. This is not reflected in the pair’s current movement, as the Aussie has lost ground against the US dollar. The movement in the ratio could be an early sign that we will see a correction whereby the pair pushes higher.

AUD/USD Fundamentals

• 1:30 Australian Current Account. Estimate -8.9B. Actual -8.5B
• 4:30 Australian Cash Rate. Estimate 2.75%. Actual 2.75%
• 4:30 Australian RBA Rate Statement
• 12:30 US Trade Balance. Exp. -41.1B
• 14:00 IBD/TIPP Economic Optimism. Estimate 50.2 points
• 17:30 US FOMC Member Esther George Speaks

*Key releases are highlighted in bold

*All release times are GMT

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.