AUD/USD - Steady As RBA Maintains Interest Rate

|
Includes: FXA, UDN, UUP
by: Dean Popplewell

By Kenny Fisher

AUD/USD has edged higher on Tuesday and is trading in the mid-095 range. The pair continues to point upwards and has gained about one cent since the start of the week. As expected, the RBA did not make any changes to the benchmark interest rate, which stands at 2.50%. However, the Bank reiterated that the Australian dollar is overvalued. In the U.S., today's highlight is the ISM Non-Manufacturing PMI.

There were no surprises from the RBA, which held the course and kept the benchmark interest rate at 2.50%. In the Bank's Rate Statement, RBA head Glenn Stevens reiterated his concern about the value of the Australian dollar. Stevens stated that the Aussie was "uncomfortably high" and that "a lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy". The RBA has stated this sentiment on numerous occasions (although in this instance Stevens employed particularly strong language), but is clearly reluctant to lower interest rates in order to push down the value of the Australian dollar. One possible explanation is that inflation in Australia came in at 2.2% in Q3, and the RBA does not want to take any steps which could raise inflation, such as lowering interest rates.

The Federal Reserve met for a policy meeting last week, the first since Congress reached an agreement on the debt ceiling and the shutdown. As expected, the Fed said that it would maintain QE at current levels of $85 billion each month. However, the Fed's policy statement was less dovish than expected, as the Fed noted that the economy was expanding "at a moderate pace" and left the door open for QE tapering in December. However, the prevailing view in the markets is that short of a sharp turnaround in U.S. numbers, QE tapering will be on hold until early 2014.

After a host of weak numbers early in the week, U.S. numbers showed some improvement. Unemployment Claims practically matched the forecast, and ISM Manufacturing PMI beat the estimate. With the Fed unlikely to taper QE before 2014, the QE uncertainty which was has been weighing on the dollar has eased, which could bolster the U.S. dollar.

AUD/USD for Tuesday, November 5, 2013

Forex Rate Graph 21/1/13

AUD/USD November 4 at 14:00 GMT

AUD/USD 0.9505 H: 0.9538 L: 0.9464

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 has not been able to sustain momentum in either direction. The pair dipped below the 0.95 line late in the European session but has bounced back above 0.95 early in North American trading.
  • The pair is testing resistance at 0.9508. This is a weak line which could fall if the Aussie shows any strength. This is followed by a strong resistance line at 0.9613.
  • On the downside, the pair is receiving 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 reflected in the current movement of the pair, which continues to trade just above the 0.95 line. The ratio is made up of a majority of open long positions, reflecting a trader bias towards the Australian dollar moving higher against the greenback.

AUD/USD is fairly quiet in Tuesday trading. We could see some activity in the North American session, as the U.S. releases key services data later in the day.

AUD/USD Fundamentals

  • 3:30 Australian Cash Rate. Estimate 2.50%. Actual 2.50%.
  • 330 RBA Rate Statement.
  • 15:00 U.S. ISM Non-Manufacturing PMI. Estimate 54.2 points.
  • 15:00 U.S. IBD/TIPP Economic Optimism. Estimate 41.1 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.