AUD/USD continues to have an uneventful week, and is trading in the low-0.92 range in Friday’s European session. On Wednesday, US GDP numbers disappointed, falling well below market expectations. The markets will be treated to string of US releases on Thursday, with the major events being Unemployment Claims and Pending Home Sales. Australia posted its only release of the week on Friday, as Private Sector Credit was slightly above the estimate.
The markets have become accustomed to mixed data out of the US, but most US numbers were very sharp this week. Earlier in the week, Core Durable Goods, CB Consumer Confidence and New Home Sales, all key releases, beat their estimates. Manufacturing data, often a sore spot, also looked good as the Richmond Manufacturing Index had its best performance since last November. Although GDP figures missed the estimate, the markets didn’t react negatively, as the US dollar held firm against the major currencies. On Thursday, Unemployment claims fell to 346 thousand, just below the estimate of 347 thousand. Pending Home Sales skyrocketed, posting a gain of 6.7%, its highest since 2006. This crushed the estimate of a 1.1% gain. These solid numbers are particularly encouraging as they come from a wide range of economic sectors. If US indicators continue to point upward, the Federal Reserve could act and start to reduce QE. Such a move would likely have a dramatic positive effect on the US dollar.
Is the Federal Reserve backtracking on QE? The US dollar surged last week after Federal Reserve Chair Bernard Bernanke said that the Fed was planning to scale down QE. However, US (and global) stock markets fell sharply on the news, and the Fed finds itself trying to contain the damage and calm the nervous markets. Dallas Fed President Richard Fisher declared that “tapering” should not be confused with “tightening” and said that the Fed was not exiting from its accommodative policy action just yet. Minneapolis Fed President Naraya Kocherlakota reiterated that the Fed was continuing with an expansionary monetary policy event if QE was terminated, and said that it was a misperception to assume that the Federal Reserve had turned more hawkish. One can be excused for dismissing these statements as little more than linguistic acrobatics, and it is questionable if the markets will be reassured by these statements from the Fed, which are clearly aimed at damage control and reassuring nervous investors.
In Australia, the political battles are heating up, as Prime Minister Julia Gillard was defeated in a Labor party leadership ballot on Wednesday, and was replaced by Kevin Rudd, who takes over as Prime Minister. According to a recent poll, Gillard’s Labor Party could take a beating in the September vote and lose more than half of its 71 seats in parliament. Elections have been called for September, and Labor is facing an uphill battle to win re-election. Meanwhile, Chris Bowen, a close ally of Rudd, has been appointed Treasurer. Bowen will also have his work cut out for him, as the Australian economy continues to sputter, despite repeated rate cuts by the RBA. Rudd is considered as being business-friendly, and his victory in the Labor leadership race could boost consumer and business confidence, and help prop up the sinking Australian dollar.
AUD/USD" width="400" height="300">
AUD/USD June 28 at 11:30 GMT
AUD/USD 0.9226 H: 0.9284 L: 0.9216
AUD/USD remains under pressure, and is testing support at 0.9221. This line was breached in the Asian session, and could fall if the US dollar shows some strength. There is a stronger support level at 0.9135. On the upside, the pair faces resistance at 0.9328. This line has strengthened as the pair trades in the low-0.92 range.
- Current range: 0.9221 to 0.9328
- Below: 0.9221, 0.9135, 0.9071, 0.9000, 0.8916 and 0.8747
- Above: 0.9328, 0.9405, 0.9541 and 0.9651
AUD/USD ratio is almost unchanged, continuing the trend we have seen since Tuesday. This is consistent with what we are currently seeing from AUD/USD, as the pair has not shown much net movement and is clearly having trouble breaking out.
AUD/USD has had a very quiet week, in large part due to the fact that there was only one Australian fundamental release this week. Traders can expect the pair to be much busier next week, as Australia releases a host of key indicators, including the Cash Rate and Retail Sales. Meanwhile, there is a good chance that the pair will remain subdued on Friday.
AUD/USD Fundamentals
- 1:30 Australian Private Sector Credit. Estimate 0.2%. Actual 0.2%.
- 12:00 US FOMC Member Jeremy Stein Speaks.
- 13:45 US Chicago PMI. Estimate 56.0 points.
- 13:55 US UoM Consumer Sentiment. Estimate 82.8 points.
- 13:55 US UoM Inflation Expectations.