AUD/USD – Aussie Drops as RBA Hints at Further Rate Cuts

AUD/USD is down in Tuesday trading, and has dropped below the 1.04 line. Although the Reserve Bank of Australia maintained its benchmark interest rate at 3.0%, market sentiment turned against the Australian dollar as the central bank left the door open to further cuts in the near future. Australian data was positive, as the AIG Services Index climbed higher. The Trade Balance had its best showing in six months, while HPI was up sharply.

Although the RBA did not lower interest rates, the Aussie was broadly lower, as the central bank stated that there was more room to cut rates due to weak inflation in the economy. The RBA noted that inflation was in line with the target, but growth was slightly below expectations. Analysts are predicting that the RBA, which kept rates at their current level of 3.0%, could step in with another rate cut as early as its next meeting. Australian data was solid, but this wasn’t enough to keep the Australian dollar from losing ground. The AIG Services Index rose to 45.3 points, but the index continues to contract, and has not cracked the 50 point threshold since last February. The monthly trade deficit narrowed in January, falling to AUD -0.43 billion. This easily beat the estimate of AUD -0.81 billion. The Housing Price Index posted a 1.6% gain, surprising the markets, which had anticipated a modest 0.3% rise. It was the index’s best showing since August 2010.

Where is the US economy headed? US economic numbers continues to keep the markets guessing about the extent of the US recovery. The recent GDP release was a major disappointment, as the economy contracted for the first time since 2009. Employment numbers lost their recent shine, as NFP and Unemployment Claims failed to meet expectations, and the unemployment rate inched up to 7.9%. On the bright side, consumer sentiment and manufacturing data have been solid. UoM Consumer Sentiment climbed to 73.8 points, well above the estimate. ISM Manufacturing PMI also was sharp, posting an eight-month high. With only a handful of key US releases this week, the markets will continue to try and get a handle on the health of the US economy. The week started off on a sour note, as US Factory Orders came in well below expectations. The manufacturing indicator rose 1.8%, but this was well off the forecast of a 2.3% gain.

AUD/USD for Tuesday, February 5, 2013

AUD/USD February 5 at 12:30 GMT

1.0392 H: 1.0458 L: 1.0379

AUD/USD Technical

AUD/USD has lost ground, dipping below the 1.04 level following the RBA rate decision. The pair is receiving weak support at 1.0376. This line could face pressure if the aussie continues to drop. This is followed by a stronger support level at 1.0230. On the upside, there is weak resistance at 1.0424. This is followed by a stronger line at 1.0530.

Current range: 1.0376 to 1.0424.

Further levels in both directions:

• Below: 1.0376, 1.0334, 1.0230, 1.0174 and 1.0031.
• Above: 1.0424, 1.0473, 1.0530, 1.0605, 1.0718, 1.0874 and 1.0961.

OANDA’s Open Position Ratios

The AUD/USD ratio is showing movement towards long positions. This is not reflected in the current move by the currency pair, as the Australian dollar has posted losses in Tuesday trading. However, the activity in the ratio could signal that we could see a correction, with the Australian dollar making up for some of the recent losses.

AUD/USD has dropped due to concerns that the RBA could step in with a rate cut, although the central bank didn’t press the trigger on Tuesday. The pair shrugged off some positive Australian data, and the current downward drive appears to have some strong momentum, and could continue.

AUD/USD Fundamentals

• 00:30 Australian Trade Balance. Estimate -0.81B. Actual -0.43B.
• 00:30 Australian HPI.  Estimate 0.3%. Actual 1.6%.
• 13:30 US FOMC Member Elizabeth Duke Speaks.
• 15:00 US ISM Non-Manufacturing PMI. Estimate 55.2 points.
• 15:00 US IBD/TIPP Economic Optimism. Estimate 46.1 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.