Aussie collapsed against the US dollar on disappointing building approvals data

On Tuesday Australian dollar took a sharp drop of over 1.5% against the greenback, following the disappointing report on building approvals from Australia and later comments by Reserve Bank of Australia (RBA) Governor Glenn Stevens.

AUD/USD plunged to a session low at 0.9051 at 6:50 GMT, the lowest point since July 15th, after which consolidation followed at 0.9064, still down by 1.53% for the day. Support was expected at July 12th low, 0.8999, while resistance was to be met at July 29th high, 0.9287.

Earlier on Tuesday it was reported that the number of building approvals in Australia decreased by 6.9% in June on a monthly basis, confounding expectations that the number will rise by 2.0%, and deteriorating in comparison with May, when revised data showed a 4.3% decline. In annual terms, building approvals plunged by 13.0% in June, while projections pointed no change in the number of approvals.

Additional selling pressure was put on the Australian currency, after the Governor of RBA said that current inflationary processes would not obstruct a new reduction of interest rates, in case economy was in need of more support. The current record low interest rates have encouraged taking up higher risks, but still not high enough to be a hindrance to a possible future cuts in rates. These comments came after a report, stating moderate inflation in the country during the second quarter of the year. Consumer prices rose by 2.4% annually, standing within the target inflation range of 2-3%. Comments also left room for a further rate reduction before elections in November.

Meanwhile, the US dollar received certain support on Monday, after the release of pending home sales report from the United States, which added to optimism over the possible short-term scale back of Federal Reserve’s Quantitative Easing. According to yesterday’s data, pending home sales decreased at a smaller than projected pace in June, by 0.4% compared to 1.0%. The index jumped by 10.9% in June this year, compared to June 2012. However, June’s result showed a retreat from a six-year high, as in May sales showed a 5.8% advance.

Elsewhere, Australian dollar plummeted against the euro as well, with EUR/AUD cross advancing 1.62%, trading at 1.4644 at 7:26 GMT.

Later in the trading day the United States was to release a report on home prices in 20 large cities throughout the country, followed by another report by the Conference Board, regarding US consumer confidence.