AUD/USD – Aussie Choppy Ahead of Australian CPI

The Australian dollar is showing limited movement on Tuesday, as AUD/USD trades at 0.6960 in the European session. On the release front, Australia will release the quarterly CPI report. In the US, today’s key event is CB Consumer Confidence, with the markets forecasting a strong reading of 96.6 points.

The Aussie remains under strong pressure, and currently finds itself below the symbolic 0.70 line. Minor currencies like the Australian dollar have been hit hard in early 2016 by the slowdown in China, with Chinese stock markets down sharply and Chinese GDP continuing to edge lower. As well, the oil collapse continues, with the commodity mired at 12-year lows. These events have resulted in nervous investors fleeing from risky currencies like the Australian dollar and snapping up safe-haven assets such as the yen and US dollar.

The Federal Reserve will be in the market spotlight on Wednesday, as the Fed concludes a two-day meeting and issues a policy statement. It’s unlikely that the Fed will raise interest rates, which currently stand at 0.25%. Economic conditions have changed significantly since the Fed raise rates in mid-December, with global stock markets and oil prices sharply lower in the since the historic rate hike. According to Morgan Stanley Morgan chief economist Ellen Zentner, financial conditions have tightened by the equivalent of four rate hikes, so the Fed may hold off from further tightening for the near future. We can expect the Fed to perform a balancing act in the upcoming statement, acknowledging weaker economic conditions while emphasizing that the economy continues to grow. The collapse of oil prices has contributed to the weak inflation picture, with current inflation levels well below the Fed target of 2.0%. Traders should be prepared for possible volatility following the upcoming policy statement.

AUD/USD Fundamentals

Tuesday (Jan. 26)

• 10:00 US CB Consumer Confidence. Estimate 96.6 points

• 14:00 US HPI. Estimate 0.4%

• 14:00 S&P/CS Composite-20 HPI. Estimate 5.7%

• 14:45 US Flash Services PMI. Estimate 53.9 points

• 15:00 US CB Consumer Confidence. Estimate 96.6 points

• 15:00 US Richmond Manufacturing Index. Estimate 3 points

• 18:30 Australian MI Leading Index

• 19:30 Australian CPI. Estimate 0.3%

• 19:30 Australian Trimmed CPI. Estimate 0.5%

Upcoming Key Events

Wednesday (Jan. 27)

• 14:00 FOMC Statement

• 14:00 Federal Funds Rate. Estimate <0.50%

AUD/USD Open: 0.6938 Low: 0.6918 High: 0.6968 Close: 0.6980

• The pair has been marked by choppy movement in the Asian and European sessions

• 0.6931 was tested earlier as a support line and remains under pressure

• There is resistance at 0.7063

• Current range: 0.6931 to 0.7063

Further levels in both directions:

• Below: 0.6931, 0.6848, 0.6754 and 0.6625

• Above: 0.7063, 0.7100 and 0.7213

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