The Australian dollar is drifting for a second straight day. Currently, AUD/USD is trading at 0.7907, down 0.06% on the day. On the fundamental front, we’ll get a look at Australian Private Capital Expenditure (00:30 GMT). The indicator has managed only one gain in the past 10 quarters, but the forecast for Q4 of 2020 stands at 1.1%. If the forecast proves accurate, the Aussie could resume its upward swing.
After posting sharp gains on Friday and Monday, the Aussie has taken a breather. The currency has benefited from the rotation of the US dollar into cyclical assets and has soared 3.58% in the month of February. Given this positive momentum and the drop in the dollar index close to 90, the Aussie could soon make a move towards the 80-cent level, which has psychological significance. This line hasn’t been breached since February 2018. The RBA has been carefully monitoring the sharp appreciation in the exchange rate and will be none too pleased if the Aussie continues to beat up on the US dollar and punches above the 80 level. A higher Australian currency can have a negative effect on price stability and makes Australian exports more expensive and hence less competitive on the global markets. The central bank extended its QE programme at the previous policy meeting, and QE has likely helped slow the appreciation of the Australian dollar. The high exchange rate is one reason why the RBA is in no rush to taper its QE scheme.
In the US, the focus remains on the Federal Reserve. Fed Chair Powell testified before Congress on Tuesday and will do so again today. The Fed remains committed to an ultra-accomodative monetary policy and this was reiterated by Powell on Tuesday. Powell sought to reassure the markets that the Fed would act carefully, slowly and that any moves would be telegraphed well in advance. This means that the Fed will provide the markets with plenty of notice before it tapers its QE scheme, with the aim of avoiding the specter of a taper tantrum.
AUD/USD remains rangebound in the Wednesday session.
- AUD/USD is testing resistance at 0.7923 for a second straight day. The next resistance line is at 0.7976
- There is support at 0.7770, followed by support at 0.7670
- The 50-day moving average (MA) is situated at 0.7694
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