AUD/USD – Climb Continues as Australian Dollar Tops 1.05
AUD/USD continues to push higher following the fiscal cliff agreement reached in Congress earlier this week. The pair has crossed over the 1.05 line, its highest level since mid-December. The US dollar was broadly weaker following news of the deal, and the aussie has taken full advantage, gaining over one full cent since Tuesday. Taking a look at fundamentals, the US markets are busy, with two key employment releases on Thursday – Non-Farm Employment Change and Unemployment Claims. The other highlight is the minutes from the FOMC's most recent policy meeting. In Australia, AIG Services Index will be released later in the day. The index has improved of late, but has failed to crack the 50 point threshold since February, pointing to ongoing contraction in the Australian services sector.
In a last-ditch effort, Congress pulled out all the stops and managed to cobble together a last minute agreement to avert the crisis. Without a deal, there was a danger that the US economy would slip into recession into 2013, due to a combination of tax increases and spending cuts. The agreement permanently extends tax cuts for all earners up to $450,000 and retains other tax breaks for individuals and businesses. Although both the Senate and House of Representatives passed the deal by large margins, although there was plenty of grumbling on both sides of the political divide- perhaps proof that the deal reached was a true compromise.
Most notably, the agreement fails to deal with two critical issues – the debt ceiling and spending cuts. The debt ceiling will be reached in February, and action will have to be taken to avoid a default on the country's debt. Republicans, who were unhappy that the fiscal cliff agreement did not address spending cuts, are expected to demand cuts in programs such as Medicare and Social Security. They will face stiff resistance from the Democrats, who vehemently oppose any reductions in these programs, and favor raising the debt ceiling, which is what Congress agreed to in 2011.
President Obama has stated he will not negotiate over the debt ceiling, but some kind of agreement will likely be reached between the two sides. The IMF has also weighed in on the matter, saying that the fiscal agreement is not enough, and that the US must take further action to deal with its long-term debt problem. The IMF call for Congress to quickly approve a comprehensive plan which to “ensure both higher revenues and containment of entitlement spending over the medium term”.
As we begin 2013, a look at recent key US releases points to a mixed and confusing picture. Employment numbers improved in December, and the markets will be hoping for a repeat from Thursday's economic releases. However, consumer confidence fell badly last month, indicating that consumers still lack confidence in the economic recovery and are wary to open up their wallets. US Housing figures were mixed as well, with New Home Sales down but Pending Home Sales up sharply. Although there are signs that the US economy is improving, this zigzagging makes it difficult to predict what to expect in early 2013.
AUD/USD for Thursday, January 3, 2012
AUD/USD January 3 at 11:45 GMT
1.0507 H: 1.0513 L: 1.0475
AUD/USD has taken full advantage of the fiscal cliff deal, and has climbed over the 1.05 line for the first time since mid-December. The proximate support and resistance lines (S1 and R1 above) remain in place, but the pair is currently testing resistance at 1.0508. This line was breached earlier today, but AUD/USD could not sustain the move and retracted. On the downside, 1.0424 continues to provide strong support.
Current range: 1.0424 to 1.0508.
Further levels in both directions:
• Below: 1.0428, 1.0376, 1.0334, 1.0230, 1.0174, and 1.0080.
• Above: 1.0508, 1.0605, 1.0718 and 1.0874.
OANDA's Open Position Ratios
With the Australian dollar continuing to push higher, the AUD/USD ratio has shown movement as well. There is now a slight bias in favor of short positions, as long positions continue to be filled. With the aussie now above the 1.05 line, trader sentiment is almost evenly split on what direction the pair will favor. Look for the ratio makeup to continue to change if the AUD/USD continues to move higher.
The US dollar continues to lose ground against the aussie, as market sentiment has improved and investors feel more comfortable with riskier assets, such as the Australian dollar. We could see the rally continue and the pair move higher.
• 12:30 US Challenger Job Cuts.
• 13:15 US ADP Non-Farm Employment Change. Exp. 134K.
• 13:30 US Unemployment Claims. Exp. 356K.
• 19:00 US FOMC Meeting Minutes.
• All Day: US Total Vehicle Sales. Exp. 15.3M.
• 22:30 AIG Services Index. Estimate 47.1 points.
*Key releases are highlighted in bold
*All release times are GMT
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