Despite the release of strong core durable goods orders data, the greenback declined against the Aussie as the growth rate of orders in July was lower compared to June. Economists now believe that the rebound in the US economic activity will be slower than anticipated earlier.
Furthermore, the US Fed, which is slated to unveil its new approach towards monetary policy next month, is expected to maintain interest rates near zero for a minimum period of five years, in addition to allowing the inflation to cross above the 2% target to make up for the recent loss in economic activities.
All these factors keep the greenback weak against major currencies, including the Aussie. In the past 24 hours, the AUD/USD pair has rallied from a low of 0.7187 to a high of 0.7250.
According to the Australian Bureau of Statistics, total construction work completed (seasonally adjusted estimate) declined 0.7% q-o-q in the June quarter, following a 0.7% increase in the earlier quarter. Economists had anticipated a negative 6.5% growth in the total construction work done in the second quarter.
In value terms, total construction work done decreased to A$50,128.80 million. Likewise, the total building work done declined 3.9% to A$28,416.70 million. However, the engineering work is done (seasonally adjusted estimate) increased 3.8% to A$21,712.10 million.
According to the US Census Bureau, durable goods orders increased 11.2% m-o-m in July, following a 7.6% increase in the earlier month and the 4.4% growth anticipated by economists. Barring volatile goods such as food and fuel, core durable goods orders rose by 2.4% m-o-m in July, following a 3.6% growth in June. Economists had anticipated core durable goods orders to increase 1.9% in July.
The decrease in the growth rate of core durable orders indicates that a rebound in economic activity and business investment could be slow against the backdrop of uncertainty caused by the COVID-19 pandemic. Nevertheless, the figures indicate that manufacturing activity is gaining momentum.
Fresh orders for non-defense (core) capital goods, barring aircraft, reflecting business spending plans, rose by 1.9% in July, as per data provided by Commerce Department. In June, core-capital goods orders increased 4.3%.
The US Energy Information Administration (EIA) reported that the country’s crude inventories declined 4.70 million barrels for the week ended August 21st. It is the fifth consecutive weekly decline. On average, analysts surveyed by S&P Global Platts anticipated a decline of 4.3 million barrels.
Despite the decline, the country’s crude oil inventories are roughly 15% higher than the five-year average for the comparable period. Overall, the oil inventories stood at 507.80 million barrels (excluding the inventories in the strategic petroleum reserve). In the earlier week, the crude inventories declined by 1.60 million barrels.
The data published by the EIA indicated that crude oil stocks at the Cushing, Okla., storage hub fell by roughly 300,000 barrels for the reported week. Likewise, gasoline stockpiles decreased 4.6 million barrels, surpassing the 2.70 million barrels decline anticipated by the S&P Global Platts survey.
However, distillate inventories increased 1.4 million barrels and missed the forecasts calling for 700,000 barrels decrease. Refineries operated at 82% of their overall capacity.
There are news reports stating that the new approach to be unveiled by the US Federal Reserve will have a laid-back view of the inflation scenario, even to the level of encouraging a short-term rise above the 2% target to compensate for the recent shortfalls.
Furthermore, the US Fed is expected to maintain short-term interest rates near zero for at least five years after it begins implementing the new monetary policy strategy.
Following the June policy meeting, Fed Chairman Jerome Powell reaffirmed there would be no rate hike for the next few years. Powell said, “We’re not even thinking about thinking about raising rates.”
It can be remembered that the Fed held interest rates near zero for around seven years, in the aftermath of the 2008 financial crisis, before implementing a hike in December 2015.
The Fed’s dovish monetary policy, lack of progress in the US-China trade dispute and rising cases of COVID-19 infections is expected to keep the AUD/USD pair range-bound with a slight bullish bias.
The historical price chart indicates that the AUD/USD pair has successfully tested support at 0.7000. The next resistance is anticipated only near 0.7690. Furthermore, the stochastic oscillator is in the bullish zone. Therefore, we are anticipating the AUD/USD pair to remain in an uptrend in the short-term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
