Article by AlgosysFx Forex Trading Solutions
The US dollar is foreseen to gain alongside the Australian dollar today as the Reserve Bank of Australia unexpectedly slashed interest rates while the US factory sector posted an encouraging uptick in September. Bucking the trend from China, Japan, Europe and in the UK, manufacturing in the US surprisingly expanded last month as new orders and employment ticked up.
The Institute for Supply Management reported that its Manufacturing PMI inclined from 49.6 points to 51.5 points last month, surpassing estimates of a modest rise to a grade of 49.8. In a positive sign of things to come, the forward-looking new orders gauge increased to its highest level since May at 52.3 while the employment gauge also increased from 51.6 points to 54.7 points, auguring well for the jobs report due on Friday. In addition, measures of production, export demand, prices paid and order backlogs climbed during the month. Analysts say that sustained strength in motor vehicle sales and a recovery in demand for home construction are helping manufacturers offset weakness in exports and business investment. Meanwhile, a report today from Autodata Corp. is seen to further buttress views that strong auto sales would help support factory conditions in the months ahead. Total vehicle sales are believed to have come in at a 14.4 Million annual rate in September, not far from the two-year high of 14.46 Million rate seen in August.
Likewise improving sentiment for the Dollar is a speech yesterday by Federal Reserve Chairman Ben Bernanke at the Economic Club in Indiana. He broadly defended the central bank’s bond-buying stimulus plan, saying it is necessary to support a sluggish economic recovery. He reiterated that Fed’s goals of price stability and maximum sustainable employment, defending against criticism that the program could stoke higher inflation. He also pledged that record stimulus will remain even after the expansion gains strength. In effect, QE3 will spur growth, cut unemployment, help savers and support the US dollar.
The primary mover for the pair, however, is today’s unprecedented move by the RBA to cut rates from 3.5 percent to 3.25 percent, its lowest level since 2009, as the outlook for the global economy had softened in recent months. Such slowdowns have caused declines in commodity prices which have substantially helped support the Australian economy in recent years. The high Aussie also played a part in the decision, with the central bank noting that the high currency has dented the bottom line of exporters. The board also forecasts that the peak in resource investment will likely take place next year at a lower level than earlier expected. Considering these, a short position is recommended for the AUD/USD trades today.
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