AUD/USD – Under Pressure As Fed Statement Looms

AUD/USD continues to struggle, as the pair trades close to the 0.89 line in Wednesday trading. In the US, the Federal Reserve concludes a critical two-day policy meeting on Wednesday, and the markets are anxiously waiting to see if the Fed tapers QE. As well, the US will release Building Permits, a key event, later in the day. There are no Australian releases on Wednesday.

All eyes are on the Federal Reserve, which wraps up a two-day policy meeting son Wednesday. Speculation is swirling that the Fed could announce a tapering of QE. Currently, the Fed is purchasing $85 billion in assets every month, and a Fed taper will likely boost the US dollar against the major currencies. Even if the Fed doesn’t announce a scale down of its asset-purchase program, it could provide a broad hint that tapering is imminent, or provide a sweetener such as a reduction of the interest paid on reserves (IOER). Any of these options would likely result in the dollar gaining ground. However, if the Fed decides not to change current policy, the markets will be disappointed and the dollar could fall. Whatever the Fed chooses to do, we can expect some volatility from the US dollar following the Fed announcement.

Meanwhile, a two-year, bipartisan budget agreement is moving quickly through Congress. The deal was overwhelmingly approved in the House of Representatives last week and the Senate is  expected to follow suit on Wednesday. The agreement sets limits on government spending for two years and reduces the deficit by a modest $23 billion. Democrats and Republicans both had criticism of the proposal, but there is general agreement in Washington that the compromise reached is a positive step which removes much of the fiscal uncertainty we’ve seen in recent months.

Over in Australia, on Tuesday the RBA released the minutes from its last policy meeting, and there wasn’t much good news as far as the Aussie was concerned. The Bank stated that a lower value for the currency would likely be required to “achieve balanced growth”. The RBA continues to try and “talk down” the Australian dollar, which has now shed about 12% of its value in 2013. The minutes noted that the RBA was maintaining interest rates but did not want to close off the possibility of a reduction if this could boost growth. Later in the day, RBA Governor Glenn Stevens reiterated that the Bank wans to see a cheaper Australian dollar. Testifying before a parliamentary committee, Stevens said that an exchange rate “over a dollar or even in the 90s” was not sustainable. He added that the RBA was open to reducing rates if conditions warranted such a move.

AUD/USD for Wednesday, December 18, 2013

AUD/USD December 18 at 12:20 GMT

AUD/USD 0.8902 H: 0.8928 L: 0.8896

AUD/USD Technical

• AUD/USD has posted slight losses in Wednesday trading. The pair briefly dropped below the 0.89 line late in the Asian session.
• The key level of 0.9000 continues to provide resistance. This is followed by a resistance line at 0.9119.
• On the downside, 0.8893 is providing support, but this line has weakened. Will the pair continue to move lower and break through this level? This line is followed by support at 0.8735, which has remained intact since July 2010.
• Current range: 0.8893 to 0.9000

Further levels in both directions:

• Below: 0.8893, 0.8735, 0.8658 and 0.8505
• Above: 0.9000, 0.9119, 0.9229, 0.9305 and 0.9400

OANDA’s Open Positions Ratio

AUD/USD ratio is almost unchanged in Wednesday trading. This is reflected in the current movement of the pair, which is showing very little activity. The ratio is made up of a substantial majority of long positions, reflecting a trader bias towards the Australian dollar moving higher.

The Australian dollar remains under pressure, as it trades at multi-month lows against the greenback. With the Federal Reserve set to make an announcement later today regarding its QE program, traders should be prepared for some volatility from AUD/USD during the North American session.

AUD/USD Fundamentals

• 13:30 US Building Permits. Estimate 0.99M.
• 13:30 US Housing Starts. Estimate 0.95M.
• 13:30 US Housing Starts (Sep. data).Estimate 0.91M.
• 13:30 US Housing Starts (Oct. data).Estimate 0.92M.
• 15:00 US Flash Services PMI. Estimate 56.4 points.
• 15:30 US Crude Oil Inventories. Estimate -2.4M.
• 19:00 US FOMC Economic Projections.
• 19:00 US FOMC Statement.
• 19:00 US FOMC Federal Funds Rate. Estimate <0.25%.
• 19:30 US FOMC Press Conference.

*Key releases are highlighted in bold

*All release times are GMT

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