AUDUSD brushes aside the RBAs minutes, awaits direction from the FOMC

June 16, 2015

The RBA released its minutes from a policy meeting earlier in the month, at which the bank left the official cash rate at 3.00%. The minutes reiterated the bank’s view that a further depreciation of the Australia dollar seems likely and necessary, particularly given the significant decline in commodity prices over the past year, momentarily sparking a sell-off in the commodity currency. However, the minutes didn’t provide the market with any new actionable information, thus we only saw a small and short-lived reaction in the AUD. It seems the bank is happy to maintain the status quo in official documents and use speeches by board members to convey the bank’s semi-explicit easing bias.

AUDUSD now turns its attention to a policy meeting at the FOMC tomorrow. The world’s first central bank is expected to be the only major central bank this year to raise interest rates which has huge ramifications for a wide range of assets, including the US dollar. Price action in the world’s reserve currency is being dominated by undulating expectations for US monetary policy; expectations which are driven by the tone of the Fed.

This time around consistent encouraging signs from the US economy may translate into a more hawkish tone from the Fed, with Yellen expected to gradually prepare the market for higher interest rates later this year. The labour market continues to recover, with an impressive 280K increase in non-farm payrolls in May, and wage and other important price pressures are building - consumer spending is increasing at an encouraging pace as retail sentiment improves. Also, gauges of manufacturing activity are pushing further into optimistic territory.

AUDUSD

At the moment the pair remains stuck between a rock and a hard place, with 0.7800/15 keeping the pair pinned down and 0.7600 providing support. If the FOMC is more hawkish than the market expects, AUDUSD may test the strength of support around 0.7600. However, a softer tone may test the strength of resistance between 0.7800 and 0.8000. From a technical perspective, the pair looks to be waiting for a break of the aforementioned resistance zone, while a break of a short-term upward trend line may encourage bears to drag the pair even lower.

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