The Australian dollar has posted modest gains in the Tuesday session. Currently, AUD/USD is trading at 0.7729, up 0.21% on the day.
Australia CPI projected to slow
Australia releases key inflation data early Wednesday (00:30 GMT). These are the only tier-1 releases this week in Australia, and should be treated as market-movers. Headline inflation is expected in for the fourth quarter at 0.7% – a respectable gain, but well below the previous release of 1.6%. Trimmed Mean CPI, which excludes the most volatile items in the headline figure, is expected to show a second straight gain of 1.4%.
Investors will also be monitoring the National Australia Bank Business Confidence Index, which will be released on Wednesday (00:30 GMT). The index has been steadily on the rise, recovering from some negative readings in H2 of 2020. The November reading improved to 12, its highest level since January 2018. Australia has weathered the Covid-19 storm quite well. An expected increase in global demand in 2021 has raised optimism in the business sector, with expectations that the export-reliant economy will get a lift from demand from China and elsewhere.
In the US, all eyes are on Wednesday’s Federal Reserve policy meeting, the first of 2021 (19:00 GMT). The Federal Reserve will be sending out a dovish message to the markets, but will the Fed be more dovish than expected? If so, the US dollar could become less attractive for investors and head lower. Fed Chair Powell is under close scrutiny to dispel talk of tapering the QE program. If he doesn’t, it could trigger a taper tantrum which could boost the US dollar. The new year brings a new face in charge of the Treasury Department, namely, Janet Yellen. It will be interesting to see the extent of cooperation between the two most important financial leaders in the country.
- AUD/USD faces weak resistance at 0.7778, followed by resistance at 0.7842
- There is support at 0.7655. Below, we have support at 0.7596
- The 50-day moving average (MA) is situated at 0.7553