AUD/USD – Steady as RBA Maintains Rate

AUD/USD is steady in Tuesday trading, as the pair trades in the low-1.02 range. As expected the Reserve Bank of Australia left interest rates at their current level of 3.0%. There was some positive news as Australian economic data looked solid. AIG Services Index hit an eight-month high, and Retail Sales climbed sharply. The Current Account deficit narrowed slightly, easily beating the forecast.

On Tuesday, there was plenty of data on Australia for the markets to chew on. Most analysts had expected the RBA to maintain the benchmark interest rate at 3.0%, and this is exactly what happened. The RBA said in an accompanying statement that economic growth in Australia was picking up, as both the domestic and global economic outlooks had shown improvement. The markets were pleased with Australian releases, which looked sharp. AIG Services Index improved to 48.5 points, its highest reading since last July. The index remains in contraction mode, as it has not been above the 50-point level since February 2012. The highlight of the day was Retail Sales, a key indicator. Retail Sales jumped 0.9%, easily beating the estimate of 0.4%. Current Account posted a deficit of 14.7 billion dollars. This was much better than the forecast of a deficit of 15.4 billion. The markets will be carefully monitoring GDP, which will be released on Wednesday. If this key indicator beats market expectations, the Aussie could move higher as a result.  

In Italy, the political crisis, which has paralyzed the country, shows no sign of abating anytime soon. The leader of the Center-left bloc, Pier Luigi Bersani, urged the leader of the 5-Star Movement, Beppe Grillo, to support a new government or agree to new elections. So far, Grillo has refused to throw his support behind any other party, resulting in a political deadlock that threatens to paralyze the Eurozone’s third largest economy. Grillo, a former comedian, has not minced his disdain for the established political leaders, and called Bersani a “dead man walking”. The stalemate could force new elections in a country weary from a sluggish economy, a staggering debt and a dysfunctional electoral system. Meanwhile, Grillo suggested that Italy hold a referendum on whether to remain in the Eurozone. Italy is facing ac crushing debt of two trillion euros, and Grillo has called for the country to renegotiate terms. Grillo, who led his party to a stunning showing in last week’s election, can now play kingmaker in any coalition talks, and his rhetoric attacking the euro and harsh spending cuts can no longer be dismissed. Many analysts believe that Grillo, who has risen to political prominence thanks to a huge protest vote, would prefer returning to the polls rather than forming a coalition with the established parties.

Turning to the US, Janet Yellen, vice-chair of the US Federal Reserve, underscored the Federal Reserve’s intent to continue its current QE program and ultra-low interest rates. Yellen said that she hoped that the low interest rates would facilitate a “return to prudent risk-taking”. The current round of QE involves the purchase of $85 billion in assets each month, and critics have expressed the fear that this could lead to “asset bubbles”. However, both Fed Chair Bernanke and Yellen have argued that the benefits of a stronger recovery outweigh any such risks. Defending the Fed’s asset purchases, Yellen cited a study which found that when the central bank purchases $500 billion in bonds, unemployment drops a quarter of a percentage point within three years. Yellen’s remarks come on the heels of Bernanke’s testimony on Capitol Hill, where he also defended the Fed’s monetary policy.

AUD/USD for Tuesday, March 5, 2013

AUD/USD March 5 at 13:00 GMT

1.0227  H: 1.0253 L: 1.0193

AUD/USD Technical

AUD/USD is steady in Tuesday trading. On the upside, the pair is putting pressure on 1.0230, which has already seen activity today. There is stronger resistance at 1.0334. The pair is receiving support at 1.0174. This line could face activity if the Aussie loses ground. The next support level is at 1.0080.

Current range: 1.0174 to 1.0230.

Further levels in both directions:

• Below: 1.0174, 1.0080, 1.00, 0.9948, 0.9858, and 0.9764
• Above: 1.0230, 1.0334, 1.0424, 1.0568 and 1.0605

OANDA’s Open Position Ratios

The AUD/USD is showing movement towards short positions. We are not seeing this reflected in the current movement of AUD/USD, which has been subdued in Tuesday trading. With the long position component enjoying a commanding majority, trader sentiment continues to be strongly biased in favor of the Australian dollar making gains against the US currency.

There was plenty of news out of Australia, as the RBA maintained interest rates and economic releases were positive. However, the Aussie has not taken advantage, as AUD/USD trades in a narrow range. We can expect the pair to show some increased activity following the release of Australian GDP on Wednesday. 

AUD/USD Fundamentals

• 00:30 Australian Retail Sales. Estimate 0.4%. Actual 0.9%.
• 00:30 Australian Current Account. Estimate -15.4B. Actual -14.7B.
• 0:300  Australian Cash Rate. Estimate 3.00%. Actual 3.00%.
• 0:300 Australian RBA Rate Statement.
• 15:00 US ISM Non-Manufacturing PMI. Estimate 55.0 points.
• 15:00 US IBD/TIPP Economic Optimism. Estimate 47.8 points.

*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.