By Kenny Fisher
The Australian dollar is drifting on Friday, as the pair trades at 0.7240 in the European session. On the release front, it’s a quiet end to the trading week, with just one US release on the schedule, Existing Home Sales. The markets are expecting an improvement in the April release, with an estimate of 5.40 million. There are no Australian releases on the calendar.
It's been a rough patch for the Aussie, which as posted weekly losses for three straight weeks against the US dollar. In that time period, the Australian currency has plunged some 450 points, and AUD/USD is at its lowest level since the end of February. The Aussie lost about 100 points on Wednesday, reacting to weak Australian job numbers. Australian Employment Change slipped to 10.8 thousand, compared to 26.1 thousand a month earlier. The Federal Reserve minutes, which were more hawkish than expected, further pushed down on AUD/USD. Over in Australia, the RBA minutes, released on Monday, noted concern over weak wage growth, and Wednesday’s wage growth report will only exacerbate those worries. The Wage Price Index posted a gain of just 0.4%, its lowest gain in more than 9 years. This soft number is reflective of very low inflation levels, which could prod the RBA to make another rate cut in August. We’re unlikely to see any moves prior to August, since the government has called an election in early July.
The Federal Reserve has a knack for surprising the markets, and this was the case again this week, with the release of the April policy meeting minutes on Wednesday. The minutes were more hawkish than expected, resulting in strong volatility in the global currency markets. The US dollar posted strong gains against most of the major currencies, including the Australian dollar. The minutes indicated that a June rate hike remains firmly on the table, and the currency markets have reacted with strong volatility. According to the minutes, the Fed wants to see stronger growth in the second quarter as well as better numbers from the inflation and employment fronts. If this is achieved, the Fed said it “likely would be appropriate” to raise rates at the June meeting. This message is somewhat hawkish in comparison to recent statements by Fed Chair Janet Yellen, which were more cautious about the strength of the US economy. The markets were skeptical that June would be a “live meeting”, with most analysts assuming that the Fed would continue to sit on the sidelines. The minutes have drastically changed market sentiment, however, since it’s clear that the June meeting will be a crucial one, as it could mark the Fed’s first interest rate hike this year. With the Fed saying that a key factor in a rate hike decision will be the strength of the US economy, upcoming major economic indicators will be under the market microscope, particularly inflation and employment numbers.
Friday (May 20)
- 10:00 US Existing Home Sales. Estimate 5.40M
*Key releases are highlighted in bold
*All release times are EDT
AUD/USD for Friday, May 20, 2016
AUD/USD May 20 at 4:50 EDT
Open: 0.7231 Low: 0.7224 High: 0.7249 Close: 0.7240
- AUD/USD has showed limited movement in the Asian and European sessions.
- 0.7160 has some breathing room in support
- 0.7251 is a weak resistance line and could see action in the Friday session
- Current range: 0.7160 to 0.7251
Further levels in both directions:
- Below: 0.7160, 0.7049 and 0.6916
- Above: 0.7251, 0.7339, 0.7472 and 0.7560
OANDA’s Open Positions Ratio
AUD/USD ratio has shown slight movement towards long positions on Friday. Long positions have a strong majority (62%), indicative of trader bias towards AUD/USD breaking out and moving higher.
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.