AUD/USD – Aussie Sharp Losses to Start 2016

The Australian dollar has posted slight losses on Tuesday, as AUD/USD trades at 0.7170 in the European session. On the release front, the lone US event is Total Vehicle Sales. Australia will release the AIG Services Index.

There hasn’t been much cheer for the Aussie as we start the New Year. AUD/USD dropped over 100 points on Monday, the first trading day of 2016. The sharp drop was largely due to a disappointing reading from Chinese Caixin Manufacturing PMI. The key indicator slipped to 48.2 points in December, short of the forecast of 48.9 points. The index managed to break above the 50-point level only once in 2015, pointing to ongoing contraction in the Chinese manufacturing sector. Meanwhile, Australian Commodity Prices continues to post sharp declines, and slipped 23.3% in December. These figures underscore decreased Chinese demand for Australian exports, which has hurt the Australian economy and weakened the commodity-based Australian dollar. The Australian dollar remains under strong pressure, and with the US dollar looking sharp, it could be a miserable January for the Australian currency.

The US economy showed strong improvement in 2015 and received a vote of confidence from the Federal Reserve, which raised interest rates just before the end of the year. At the same time, certain sectors which have lagged behind the recovery, such as the manufacturing industry. Recent manufacturing releases have missed expectations, and the negative trend continued on Monday. ISM Manufacturing PMI, a key indicator, slipped to 48.2 points, well short of the forecast of 49.1 points. This weak reading is raising concerns, since it marks back-to back releases below the 50-point level, which separates expansion from contraction. It is also the sixth consecutive month that the PMI has softened. As well, ISM Manufacturing Prices dipped to 33.5 points, well below expectations.

AUD/USD Fundamentals

Tuesday (Jan. 5)

• All Day – US Total Vehicle Sales. Estimate 18.1M

• 22:30 Australian AIG Services Index.

• AUD/USD posted slight gains in the Asian session, but lost these gains in European trade and continues to move lower

• 0.7213 is a weak resistance line The round number of 0.7100 is providing support

• Current range: 0.7100 to 0.7213

Further levels in both directions:

• Below: 0.7100, 0.7063 and 0.6931

• Above: 0.7213, 0.7349, 0.7440 and 0.7526