AUD/USD – Rangebound As Fed Statement in Spotlight

AUD/USD is almost unchanged in trading on Wednesday. The pair continues to trade in the mid-0.93 range in the European session. The markets are keenly awaiting the FOMC Statement later in the day. In economic news, released minutes of the RBA’s last policy meeting indicated that the RBA has not ruled out further interest rate cuts, but has no imminent plans to target interest rates. The Australian CB Leading Index and MI Leading Index both showed strong improvement in the August readings. In the US, inflation remains subdued, with Core CPI posting a paltry gain of 0.1%. Today’s highlight is US Building Permits. The markets are expecting little change compared to the July release.

All eyes are on the FOMC Statement, which will be released later on Wednesday, after the Federal Reserve winds up a two-day policy meeting. Fed chief Bernanke will follow up with a press conference. The markets have been speculating about QE tapering for months, and we could see the Fed take action in the upcoming statement. However, there is a stronger likelihood that QE tapering will not begin until later in the year, as US economic releases, particularly employment data, could be stronger. Traders should be prepared for some volatility in the currency markets once the FOMC Statement is released.

Federal Reserve head Bernard Bernanke steps down as head of the US Federal Reserve at the end of January, and it’s not clear who will take over the powerful and prestigious position. Former Treasury Secretary Lawrence Summers was considered the leading contender, but withdrew his nomination, leaving Vice Chairman Janet Yellen as the favored candidate. Yellen is considered dovish and may be hesitant when it comes to QE tapering. Continuing uncertainty about who will take over from Bernanke could lead to some instability in the currency markets.

What’s wrong with the US economy? Last week’s releases were a disappointment, and this week’s releases have not impressed either. Empire State Manufacturing Index, an important release, posted another sharp drop in August. The indicator fell from 8.2 points to 6.3 points. This was way off the estimate of 9.2 points. On Tuesday, US inflation releases continue to point to very low inflation. Core CPI, a key event, posted a paltry gain of 0.1%. The markets will be hoping for some better news from today’s major release, US Building Permits.

In Australia, the RBA released the minutes of its most recent policy meeting, and left room for future interest rate cuts. At the meeting, the RBA kept the benchmark interest rate steady at 2.50%. The minutes stated that “members agreed that the bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them”. In plain English – no rate moves for now, but that could change. The RBA has indicated that it would prefer a cheaper Australian dollar, which could concern investors and weigh on the currency.

AUD/USD for Wednesday, September 18, 2013

AUD/USD 0.9355 H: 0.9370 L: 0.9336

AUD/USD Technical

• AUD/USD is trading in a narrow band in Wednesday trading, as it continues to trade in the mid-0.93 range.
• The pair continues to face resistance at the round number of 0.9400. This is followed by resistance at 0.9508. This line has remained in place since June.
• On the downside, the pair is receiving weak support at 0.9328. This line could be tested if the US dollar gains ground. This is followed by stronger support at 0.9221.
• Current range: 0.9328 to 0.9400

Further levels in both directions:

• Below: 0.9328, 0.9221, 0.9135, 0.9089 and 0.9000
• Above: 0.9400, 0.9508, 0.9613 and 0.9700

OANDA’s Open Positions Ratio

AUD/USD ratio is pointing to movement towards short positions in Wednesday trading. This is not reflective of what we are currently seeing from the pair, which is showing very little movement. Long positions retain a sizeable majority, indicative of strong trader sentiment towards the Aussie moving higher.

AUD/USD is showing little activity as the markets wait for the FOMC Statement later on Wednesday. Whether the Fed pulls the tapering trigger or stands pat, we could see some volatility from the pair. As well, the US releases key construction data, and a release which is not in line with market expectations could affect the movement of AUD/USD.

AUD/USD Fundamentals

• 00:00 Australian CB Leading Index. Actual 0.3%.
• 00:00 Australian MI Leading Index. Actual 0.6%.
• 1:30 RBA Assistant Governor Malcolm Edey Speaks.
• 12:30 US Building Permits. Estimate 0.95M.
• 12:30 US Housing Starts. Estimate 0.93M.
• 14:30 US Crude Oil Inventories. Estimate -1.2M.
• 18:00 US FOMC Economic Projections.
• 18:00 US FOMC Statement.
• 18:00 US Federal Funds Rate. Estimate <0.25%.
• 18:30 US FOMC Press Conference.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.