AUD/USD - Aussie Slide Continues On Weak Consumer Sentiment

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

By Kenny Fisher

AUD/USD continues to lose ground on Wednesday, as the pair trades in the low-0.92 range early in the North American session. The Aussie, which has dropped to three-week lows, remains under pressure as Consumer Sentiment plunged in April, with its sharpest decline since August 2011. Wage Price Index was unchanged and met expectations. In the US, the Federal Reserve releases its policy meeting minutes, and Fed chair Janet Yellen speaks at a university commencement in New York.

Australian consumers were in a sour mood in April, as Consumer Sentiment plunged 6.8%, its steepest decline since August 2011. Weaker consumer confidence usually translates into less consumer spending, a key engine of economic growth. With the recent Australian budget offering tax increases and spending cuts, the fragile Australian economy is expected to slow down, and this could hurt the Australian dollar.

The RBA minutes were released on Tuesday, and the central bank said that it plans to keep interest rate levels at the current low levels of 2.50% for the foreseeable future, due to projections of weak growth from the economy. With inflation at low levels and the government having just delivered an austerity budget, the RBA said it has no plans to alter its accommodative monetary stance. Unlike recent policy statements, the RBA did not comment on the high value of the Australian dollar. In the past, the RBA has not hesitated to point a finger at the Aussie, saying it has weighed on the economic recovery.

All eyes will be on the Federal Reserve on Wednesday, with the release of the minutes of the most recent policy meeting. The Fed has been steadily trimming its asset purchase program since December, and is expected to wind up the program before the end of 2o14, provided that the economy does not take a downward spin. Since 2008, the benchmark interest rate has been close to zero, and no increases are expected before mid-2015. The pace of future increases will likely be slow to allow for a smooth adjustment from the economy and the financial markets.

In the US, key indicators have been generally strong, and last week ended with encouraging housing numbers. Building Permits jumped to 1.08 million, well above the estimate of 1.01 million. This was the highest level we've seen since December 2006. Housing Starts continues to move higher and climbed to 1.07M, compared to the estimate of 0.98M. This marked a five-month high. Meanwhile, UoM Consumer Sentiment dipped to 81.8 points, short of the estimate of 84.7 points.

AUD/USD for Wednesday, May 21, 2014

Forex Rate Graph 21/1/13

AUD/USD May 21 at 14:20 GMT

AUD/USD 0.9217 H: 0.9243 L: 0.9209

AUD/USD Technical

S3 S2 S1 R1 R2 R3
0.8893 0.9000 0.9119 0.9229 0.9361 0.9446
Click to enlarge
  • AUD/USD has posted modest losses in Wednesday trade. The pair touched a low of 0.9209 early in the North American session.
  • On the downside, 0.9119 is providing strong support.
  • On the upside, 0.9229 has reverted to a resistance role as the Australian dollar loses ground. This is a weak line and could see further action during the day. 0.9361 is a strong line of resistance.

Further levels in both directions:

  • Below: 0.9119, 0.9000, 0.8893 and 0.8757
  • Above: 0.9229, 0.9361, 0.9446 and 0.9617

OANDA's Open Positions Ratio

AUD/USD ratio is pointing to gains in long positions in Wednesday trading, continuing to trend we saw a day earlier. This is not consistent with the movement from the pair, as the Aussie has posted losses. The ratio has a strong majority of long positions, indicative of trader bias towards the Australian dollar rebounding and moving upwards.

AUD/USD has posted losses in Wednesday trading. The Aussie is under pressure early in the North American session. Will the pair dip below the 0.92 line?

AUD/USD Fundamentals

  • 00:30 Australian Westpac Consumer Sentiment. Actual -6.8%.
  • 1:30 Australian Wage Price Index. Estimate 0.7%. Actual 0.8%.
  • 14:00 US FOMC Member William Dudley Speaks.
  • 14:30 US Crude Oil Inventories. Estimate -0.1M.
  • 15:30 US Federal Reserve Chair Janet Yellen Speaks.
  • 17:30 US FOMC Member Narayana Kocherlakota Speaks.
  • 18:00 US FOMC Meeting Minutes.

*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.