Yesterday’s trade saw AUD/USD within the range of 0.6835-0.6962. The pair closed at 0.6911, going up 0.67% on a daily basis. It has been the 3rd gain in the past 12 trading days. In addition, the daily low was a higher-low test of the low from January 18th.
At 10:19 GMT AUD/USD was losing 0.84% for the day to trade at 0.6853. The pair touched a daily low at 0.6828 at 8:58 GMT, overshooting the lower range breakout level (S4), and a daily high at 0.6924 during the early hours of the Asian trading session. Support may be received within the 0.6920-0.6935 area, where the pair was supported on several occasions in the past week. A break and close below that area may test the 0.6770-0.6785 area, or levels unseen since late March 2009. Resistance, on the other hand, may be encountered at the hourly 21-period EMA (0.6879), then – at the hourly 55-period EMA (0.6892) and finally – in the area around the current daily high (0.6924).
On Wednesday AUD/USD trading may be influenced by the following macroeconomic reports listed below.
Fundamentals
United States
Housing starts, Building permits
The number of housing starts in the United States probably increased to 1.200 million units in December, according to market expectations, from the seasonally adjusted annual rate of 1.173 million during the prior month. If expectations were met, this would be the highest number of starts since September 2015, when a figure of 1.206 million was reported. In November starts of single-family houses rose at a monthly rate of 7.6% to 768 000, while starts of buildings with five units or more were 18.1% higher to reach 398 000. Housing starts increased 21.3% in the South and 6.3% in the West, but dropped 8.5% in the Northeast. Housing starts in the Midwest remained unchanged.
Housing starts represent a gauge to measure residential units, on which construction has already begun every month. A start in construction is defined as the foundation laying of a building and it encompasses residential housing primarily.
The number of building permits in the country probably dropped to 1.200 million in December from an annual level of 1.289 million in November. The latter has been the largest number of permits since June 2015, when a level of 1.343 million was reported. Single-family authorizations increased at a monthly rate of 1.1% to reach 723 000 units in November, while permits of units in buildings with five units or more were reported to have risen 30.8% to 539 000.
Building permits are permits, issued in order to allow excavation. An increase in the number of building permits and housing starts usually occurs a few months after mortgage rates in the country have been reduced. Authorizations are not required in all regions of the United States. Building permits, as an indicator, also provide clues in regard to demand in the US housing market. In case a higher-than-anticipated figure is reported, this would support demand for the US dollar. The official report is due out at 13:30 GMT.
Consumer inflation
The annualized consumer inflation in the United States probably accelerated to 0.8% in December, according to market expectations, from 0.5% in November. If so, it would be the highest rate of inflation since December 2014, when the annual CPI rose 0.8%. In monthly terms, the Consumer Price Index (CPI) probably remained flat for a second consecutive month in December, after going up 0.2% in October.
In November upward pressure came from cost of services less energy (up 2.9% year-on-year, following a 2.8% gain in October). Within the category, cost of shelter went up 3.2% year-on-year, cost of medical care rose 2.5% and cost of transportation services increased 2.3%. Additionally, consumers paid more for food in November (up at an annualized rate of 1.3%, but slowing down from a 1.6% increase in October), according to the report by the Bureau of Labor Statistics. The largest downward pressure on the annual CPI came from prices of energy (down 14.7% in November from a year ago, or a lesser decline compared to October).
The annualized core consumer inflation, which is stripped of prices of food and energy, probably accelerated to 2.1% in December, according to expectations, from 2.0% registered in November. If so, Decembers core inflation would be the highest since July 2012.
If the CPI tends to approach the inflation objective, set by the Federal Reserve and considered as providing price stability, or a level below but close to 2%, this will usually bolster the appeal of the US dollar, as it heightens the probability of monetary policy tightening.
The Bureau of Labor Statistics is to release the official CPI report at 13:30 GMT.
Bond Yield Spread
The yield on Australian 2-year government bonds went as high as 1.956% on January 19th, or the highest level since January 15th (1.997%), after which it closed at 1.923% to lose 0.001 percentage point compared to January 18th. It has been the 9th drop in the past 16 trading days.
The yield on US 2-year government bonds climbed as high as 0.890% on January 19th, after which it closed at 0.870% to add 2 basis points (0.02 percentage point) compared to January 18th. It has been the 9th gain in the past 25 trading days.
The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, narrowed to 1.053% on January 19th from 1.074% on January 18th. The January 19th yield spread has been the lowest one since January 11th, when the difference was 1.045%.
Meanwhile, the yield on Australian 10-year government bonds soared as high as 2.720% on January 19th, or the highest level since January 15th (2.742%), after which it slid to 2.695% at the close to add 0.004 percentage point compared to January 18th.
The yield on US 10-year government bonds climbed as high as 2.087% on January 19th, after which it slipped to 2.056% at the close to add 1.1 basis points (0.011 percentage point) compared to January 18th. It has been the 11th gain in the past 25 trading days and also a second consecutive one.
The spread between 10-year Australian and 10-year US bond yields narrowed to 0.639% on January 19th from 0.646% on January 18th. The January 19th yield difference has been the lowest one since January 14th, when the spread was 0.611%.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for AUD/USD are presented as follows:
R1 – 0.6923
R2 – 0.6934
R3 (range resistance) – 0.6946
R4 (range breakout) – 0.6981
S1 – 0.6899
S2 – 0.6888
S3 (range support) – 0.6876
S4 (range breakout) – 0.6841
By using the traditional method of calculation, the weekly pivot levels for AUD/USD are presented as follows:
Central Pivot Point – 0.6914
R1 – 0.7005
R2 – 0.7140
R3 – 0.7231
S1 – 0.6779
S2 – 0.6688
S3 – 0.6553
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