Aussie Edges Higher Ahead Of Inflation Report
MarketPulse | Jul 28, 2016 07:21AM ET
The Australian dollar is subdued on Thursday, as AUD/USD is currently trading at 0.7530. On the release front, Australian Import Prices declined 1.0%, well off the estimate of a 1.6% gain.
Later in the day, Australia releases PPI, an important inflation indicator. The markets are expecting a small gain of 0.2%. In the US, there are just two releases, highlighted by Unemployment Claims. The indicator is expected to rise to 261 thousand.
The markets were keeping a close eye on Australia’s CPI release on Wednesday. The index rebounded nicely in the second quarter, posting a gain of 0.4%, compared to a decline of 0.2% in the first quarter. It’s not clear how the RBA, which will set interest rates next week, plans to respond to the CPI release.
The markets have priced in a 50% chance that the bank will lower rates, and an unexpected CPI reading could have swayed the odds of a rate cut. However, the reading matched the forecast, so the question of whether the RBA will act remains up in the air.
The annual inflation rate stands at just 1.0%, well below the RBA’s stated target of 2% to 3%. Will this be enough of a factor to prod the RBA into action? We’ll have to wait and see.
Many economists see interest rates steadily declining, with Capital Economics chief analyst Paul Dales projecting that rates could drop as low as 1%. PPI, which measures inflation in the manufacturing sector, is also struggling. The index declined 0.2% in the first quarter, marking its worst showing since 2012.
There were no dramatic moves by the Federal Reserve, which concluded its policy meeting on Wednesday. The bank continued to hold the course on interest rates, maintaining levels at 0.25% in a 9-1 vote. The Fed statement sounded upbeat, saying that risks to the economy have receded and the employment market is getting tighter.
The Fed added that it continues to monitor inflation levels and noted that the housing sector had improved. Will the Fed make a move and raise rates in September? It appears that the Fed could go either way, and policymakers will make a decision at the September meeting based on the strength of US data.
This means that key US numbers, such as Friday’s Advance GDP report, will be under the market microscope, and unexpected readings could lead to strong volatility in the currency markets.
AUD/USD Fundamentals
Wednesday (July 27)
- 21:30 Australian Import Prices. Estimate 1.6%. Actual -1.0%
Thursday (July 28)
- 8:30 US Unemployment Claims. Estimate 261K
- 10:30 US Natural Gas Storage. Estimate 29B
- 21:30 Australian PPI. Estimate 0.2%
- 21:30 Australian Private Sector Credit. Estimate 0.5%
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Upcoming Key Events
Friday (July 29)
- 8:30 US Advance GDP. Estimate 2.6%
*Key releases are highlighted in bold
*All release times are EDT
AUD/USD for Thursday, July 28, 2016
AUD/USD July 28 at 6:40 EDT
Open: 0.7517 High: 0.7549 Low: 0.7505 Close: 0.7531
AUD/USD Technical
| S3 | S2 | S1 | R1 | R2 | R3 |
| 0.7251 | 0.7339 | 0.7440 | 0.7560 | 0.7701 | 0.7835 |
- AUD/USD was flat in the Asian session. The pair has posted small gains in European trade
- 0.7440 is providing strong support
- 0.7560 is under pressure as resistance
- Current range: 0.7440 to 0.7560
Further levels in both directions:
- Below: 0.7440, 0.7339, 0.7251 and 0.7105
- Above: 0.7560, 0.7701 and 0.7835
OANDA’s Open Positions Ratio
AUD/USD ratio has shown movement towards short positions. Currently, long positions retain a majority (54%), indicative of trader bias towards AUD/USD continuing to gain ground.
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