AUD/USD holds 0.93, but outlook still negative

The Australian dollar was little changed against its US counterpart in Monday’s Asian session, as weaker than forecast US data kept demand for the greenback in check. However, the outlook on the AUDUSD remains negative, as investors anticipate another US dollar breakout in the coming months. Meanwhile, the overall health of Australia’s economy has come under scrutiny in the wake of disappointing employment figures and an overall mixed bag of economic data in recent weeks.

In July Australia’s unemployment rate exceeded that of the US for the first time since 2007, as a broad slowdown in mining investment and sharp budgetary reforms weighed on the labour market.

Australian unemployment rate reached a 12-year high last month, rising 0.4 percentage points to 6.4 percent, official data revealed on August 7. Since Prime Minister Tony Abbot assumed office last year, Australia’s economy has created an average of 11,000 jobs per month, well short of the 17,000 that’s required to meet Abbott’s campaign promise of creating 1 million jobs over the next five years.

By contrast, the US unemployment rate is at 6.2 percent. Overall employment has surged this year, with the US labour market adding more than 200,000 jobs per month since February.

Trade volumes for the AUDUSD could remain low on Monday, reflecting a quiet economic release schedule.

In Australian data, new motor vehicle sales declined 1.3 percent in July, following a 1.7 percent advance the previous month, the Australian Bureau of Statistics reported today. Compared to the previous 12 months, new vehicle sales were down 0.4 percent.

In US data, the National Association of Home Builders will release its closely followed housing market index in the North American session. The index, which gauges builder confidence in the residential real estate market, rose above the 50 mark that separates optimism from pessimism for the first time in six months. The index has been slowly climbing since plunging ten points in February, when severe weather pounded the Midwestern and Eastern United States.

The AUDUSD was trading at 0.9316, relatively unchanged from the previous close of 0.9319. The pair traded within a narrow range of 0.9309-0.9324. The daily chart shows initial support at 0.9300 and resistance at 0.9338. The pair tested the 100-day simple moving average on Friday before consolidating lower. The Aussie has given up more than 100 pips against its US counterpart since the beginning of July.

The US dollar index tread water last week following disappointing retail sales and consumer confidence data. Meanwhile, a report on business inventories suggested the US economy grew at a slightly slower rate than previously forecast in the second quarter.

The outlook on Australia’s currency is negative. Market participants are increasing bullish bets on the US dollar, which is expected to breakout on a wider scale after the Federal Reserve ends its record bond buying program in October and signals at higher interest rates.

The Fed is expected to begin raising interest rates in the middle of next year.

Meanwhile, the Reserve Bank of Australia on Tuesday will release the minutes of its August policy meetings, where it left its cash rate at a record low of 2.5 percent for the twelfth consecutive month.