The Australian dollar has been pointed in a downward direction all week and has lost about one cent against the US dollar since the start of trading this week. AUD/USD flirted with the 90 level on Wednesday, and is trading slightly above 90 in the European session. Taking a look at economic releases, the minutes of the RBA’s most recent policy meeting indicated that another interest rate reduction is not imminent. The Australian MI Leading Index came in at 0.0%, its lowest level since January 2012. In the US, there are two key releases later today – Existing Home Sales and the FOMC minutes of the Fed’s most recent policy meeting.
Australian releases continue to have trouble and this was underscored by a very weak New Motor Vehicles Sales release earlier this week. The release declined 3.5%, its sharpest drop in over two years. The indicator is an important gauge of consumer spending, since cars and trucks are big-ticket items and a decrease in sales points to lower consumer confidence and spending. On Tuesday, the RBA released the minutes of its most recent policy meeting. At the meeting, the RBA decided to lower rates from 2.75% to 2.50%. The central bank said that another interest rate cut is not imminent. This was good news for the Aussie, as another interest rate cut would make the currency less attractive to investors. The RBA also indicated that it would welcome further depreciation of the Australian dollar in order to strengthen the economy. The bottom line? The RBA would prefer not to have to reduce interest rates in the near future, but is prepared to act if the Australian dollar moves higher and pulls away from the 0.90 level. The Aussie has lost some 11% in the past six months, and it’s clear that the RBA does not want it returning to high levels.
When will the Federal Reserve taper down its QE program? That is the million dollar question, and there has been plenty of speculation about when the Federal Reserve will make a move. Currently, the Fed is purchasing $85 billion in assets every month, and Fed chair Bernard Bernanke has indicated that the Fed plans to taper QE if the US economy continues to improve. However, Bernanke has been vague about when the Fed might act, leading to speculation and uncertainty in the markets. There has been talk about the Fed tapering QE as early as September and the FOMC minutes could shed some light on the Fed’s intentions. Since tapering QE is a dollar-positive event, any hints in the minutes about scaling back QE could boost the US dollar.
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AUD/USD Technicals" width="588" height="40">AUD/USD is quiet on Wednesday. The pair touched a low of 0.9712 in the Asian session and then edged higher. AUD/USD is currently facing resistance at 0.9089. This line could face pressure if the Aussie strengthens. The next resistance line is 0.9135.
On the downside, the pair is receiving support at the all-important 0.9000 level. This is followed by resistance at the round number of 0.9000. This line has held firm since early August. The next support level is at 0.8916.
- Current range: 0.9000 to 0.9089
- Below: 0.9000, 0.8926, 0.8844, 0.8747, 0.8578 and 0.8467.
- Above: 0.9089, 0.9135, 0.9221 and 0.9328
AUD/USD ratio shows a strong majority of long positions, which currently outnumber short positions by about 2:1. This indicates that trader sentiment is strongly biased towards the Aussie making gains against the US dollar.
The Aussie remains under pressure and is strugling to remain above the 0.90 line. With the US releasing the Federal Reserve policy meeting minutes as well as well as Existing Home Sales later today, we could see some volatility from the pair.
AUD/USD Fundamentals
- 1:30 Australian MI Leading Index. Actual 0.0%.
- 14:00 US Existing Home Sales. Estimate 5.15M.
- 14:30 US Crude Oil Inventories. Estimate -1.6M.
- 18:00 US FOMC Meeting Minutes.
*All release times are GMT