By Kenny Fisher
The Australian dollar continues to post gains against the U.S. currency. AUD/USD is trading in the mid-0.89 range in Monday trading. The Aussie continues to trade at low levels, but has gained about one cent against the greenback since Thursday. In economic news, there are no Australian releases this week. Today’s highlight out of the U.S. is UoM Consumer Sentiment. The markets are expecting a strong reading for November, with an estimate of 82.9 points.
U.S. releases ended on a positive note last week, as GDP climbed 4.1% in Q3, compared to 2.6% in the previous quarter. This was the indicator's sharpest gain since Q1 of 2010. The estimate stood at 3.6%. This excellent figure help push up the dollar, which had already posted sharp gains against the euro following the Fed’s taper announcement. Meanwhile, Unemployment Claims jumped to 379 thousand claims last week, up from 368 thousand the week before. This was well above the estimate of 336 thousand. The previous release's weak numbers were attributed to the holiday season, but two consecutive poor releases will certainly not comfort the markets. There was more bad news to follow, as Existing Home Sales and the Philly Fed Manufacturing Index fell short of their estimates.
The markets are still buzzing after last week's announcement by the Federal Reserve that it would begin tapering its QE program by $10 billion a month, commencing in January. This will reduce the Fed's asset purchases to $75 billion every month, comprised of $40 billion in Treasuries and $35 billion in mortgage bonds. The announcement came as somewhat of a surprise, as most analysts had expected the Fed to hold off on any QE reductions until early next year.
In its dramatic tapering announcement, the Federal Reserve was careful to separate tapering from rate hike expectations. Fed chairman Bernard Bernanke stated that interest rates are likely to remain low even after the unemployment rate drops below 6.5%. Previously, the Fed had stated that it would start to consider rate increases when unemployment fell below this level. Bottom line? With the unemployment rate at 7.0%, it could be a while before we see higher interest rates in the U.S.
Overshadowed by the Fed's bombshell announcement, a two-year, bipartisan budget agreement is sailing through Congress. The deal was overwhelmingly approved in the House of Representatives last week and the Senate followed suit on Wednesday, passing the measure by a vote of 64-36. The bill will now go the President Obama for his signature before becoming law. The agreement sets limits on government spending for two years and reduces the deficit by a modest $23 billion. Democrats and Republicans both had criticism of the proposal, but there is general agreement in Washington that the compromise reached is a positive step which removes the threat of a shutdown which paralyzed the government in October for 16 days.
Last week, the Reserve Bank of Australia released the minutes from its last policy meeting, and there wasn't much good news as far as the Aussie was concerned. The Bank stated that a lower value for the currency would likely be required to "achieve balanced growth". The RBA continues to try and "talk down" the Australian dollar, which has now shed about 12% of its value in 2013. The minutes noted that the RBA was maintaining interest rates but did not want to close off the possibility of a reduction if this could boost growth. Later in the day, RBA Governor Glenn Stevens reiterated that the Bank wants to see a cheaper Australian dollar. Testifying before a parliamentary committee, Stevens said that an exchange rate "over a dollar or even in the 90s" was not sustainable. He added that the RBA was open to reducing rates if conditions warranted such a move, and the possibility of a rate cut could weigh on the struggling Australian dollar.
AUD/USD for Monday, December 23, 2013
AUD/USD December 23 at 15:00 GMT
AUD/USD 0.8936 H: 0.8956 L: 0.8920
- AUD/USD has edged higher in Monday trading. The pair touched a high of 0.8958 in the European session but has since moved higher.
- The round number of 0.9000 is providing resistance. This key level could face pressure if the Australian dollar continues to move upwards. This is followed by a resistance line at 0.9119.
- On the downside, 0.8893 is providing support. This line has some breathing room as the AUD/USD continues to move higher. The next support level is 0.8735.
- Current range: 0.8893 to 0.9000
Further levels in both directions:
- Below: 0.8893, 0.8735, 0.8658, 0.8505 and 0.8411
- Above: 0.9000, 0.9119, 0.9229 and 0.9305
OANDA's Open Positions Ratio
AUD/USD ratio is made up of a substantial majority of long positions, reflecting a trader bias towards the Australian dollar continuing to move higher against the U.S. dollar.
The Australian dollar has posted slight gains in Monday trading and continues to climb towards the 0.9000 line. With no major U.S. releases on Monday, the North American session could be a quiet one for AUD/USD.
- 13:30 U.S. Core PCE Price Index. Estimate 0.1%.
- 13:30 U.S. Personal Spending. Estimate 0.5%.
- 13:30 U.S. Personal Income. Estimate 0.4%
- 14:55 U.S. Revised UoM Consumer Sentiment. Estimate 82.9 points.
- 14:55 U.S. Revised UoM Consumer Inflation Expectations.
*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.