Australian Dollar Slide Continues After Glenn Stevens' Warning

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 |  Includes: AUDS, UUP
by: Dean Popplewell

By Kenny Fisher

AUD/USD has lost ground in Tuesday trading. The pair has dropped below the 0.95 line in Tuesday's North American session. The Aussie lost ground after RBA Governor Glenn Stevens warned that the currency is overvalued and due for a correction. In economic news, it was another disappointing day in the US as PPI, Retail Sales and CB Consumer Confidence all missed their estimates. Core Retail Sales was the lone bright spot, as it matched the forecast. As well, the Federal Reserve meets for a two-day policy meeting which begins on Tuesday.

If RBA Governor Glenn Stevens was looking to scare the markets with some negative comments about the Australian dollar, he appears to have succeeded, at least temporarily. Stevens stated that the high level of the currency was not supported by the costs and productivity in the economy, and urged investors to tread carefully in the foreign exchange market. The RBA wants to see a lower Australian dollar, in order to boost the manufacturing and export sectors, which are struggling. The Bank is reluctant to lower interest rates right now, so it appears that Stevens is trying to "talk down" the currency. If the Australian dollar remains high, we can expect similar types of statements from the RBA.

In the US, the grim readings continued on Tuesday. PPI and Retail Sales both declined by 0.1%, missing the estimate of 0.2%. CB Consumer Confidence dropped sharply, from 79.7 to 71.2 points, a six-month low. This was well short of the estimate of 75.7 points. Core Retail Sales managed to match the forecast, rising to 0.4%. The mostly weak figures come on the heels of dismal housing numbers on Monday. If confidence in the US economy starts to weaken, we could see the dollar, which is already under pressure from the major currencies, lose ground.

The markets are carefully monitoring the FOMC policy meeting, which began on Tuesday. Federal Reserve policymakers have indicated that the Fed is unlikely to taper QE in 2013, and weak US releases will only reinforce this sentiment, and tapering could be on hold to March or April of next year. As tapering is bullish for the dollar, lack of action by the Fed will continue to weigh on the struggling dollar.

AUD/USD for Tuesday, October 29, 2013

Forex Rate Graph 21/1/13

AUD/USD October 29 at 14:30 GMT

AUD/USD 0.9483 H: 0.9523 L: 0.9486

AUD/USD Technical

S3 S2 S1 R1 R2 R3
0.9229 0.9305 0.9400 0.9508 0.9613 0.9700
Click to enlarge
  • AUD/USD continues to lose ground on Tuesday. The pair is trading close to the 0.95 line.
  • The pair is facing resistance at 0.9508. This is a weak line which could see more action in the North American session. This is followed by a strong resistance line at 0.9613.
  • On the downside, the pair is receiving strong support at the round number of 0.9400. This is followed by support at 0.9305, which has remained in place since early October.
  • Current range: 0.9400 to 0.9508

Further levels in both directions:

  • Below: 0.9400, 0.9305, 0.9229 and 0.9119
  • Above: 0.9508, 0.9613, 0.9700, 0.9821 and 0.9900

OANDA's Open Positions Ratio

AUD/USD ratio is unchanged in Tuesday trading. This is not reflected in the pair's current movement, as the Australian dollar continues to lose ground against the US dollar. A majority of the open positions in the AUD/USD ratio are long, reflecting a trader bias towards the Aussie reversing direction and moving higher.

The Australian dollar remains under pressure, and is struggling to stay close to the 0.95 line. We could see the pair's downward movement continue in the North American session.

AUD/USD Fundamentals

  • 12:30 US Core Retail Sales. Exp. 0.4%. Actual 0.4%.
  • 12:30 US PPI. Exp. 0.2%. Actual -0.1%.
  • 12:30 US Retail Sales. Exp. 0.2%. Actual -0.1%.
  • 12:30 US Core PPI. Exp. 0.1%. Actual 0.1%.
  • 13:00 US S&P/CS Composite-20 HPI. Exp. 12.4%. Actual 12.8%.
  • 14:00 US CB Consumer Confidence. Exp. 75.2 points. Actual 71.2 points.
  • 14:00 US Business Inventories. Exp. 0.3%. Actual 0.3%.

*Key releases are highlighted in bold

*All release times are GMT

Disclosure: 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.