AUD/USD – Aussie Hugging 72 Line as All Eyes on Fed

The Australian dollar is steady on Wednesday, as AUD/USD is trading just shy of the 0.72 line in the European session. In economic news, the Federal Reserve is expected to announce a historic rate hike for the first time since June 2006. The US will also release Building Permits, a key event. There are no Australian events on Wednesday.

The currency markets are in a holding pattern on Wednesday, ahead of the crucial Fed meeting which could prove to be the economic release of the year. The Fed will conclude a two-day policy meeting later on Wednesday and the stage is set for the Fed to raise rates by 0.25%, with further rate hikes to follow in 2016. The Fed last raised rates back in June 2006, and Fed chief Janet Yellen and other policymakers have sent broad signals to the markets that the US central bank if finally ready to press the rate trigger. The US economy is close to full employment, and Yellen recently stated that she was not concerned about persistently low inflation. How will the currency markets react to a historic rate hike by the Fed? Given that the markets have had ample time to price in this event, we may not see a strong response immediately after the event. At the same time, even a small rate increase represents a huge shift in the Fed’s monetary policy, which could help boost the US dollar against the Aussie and other rivals over the next few months.

On Tuesday, there were mixed messages about the health of the Australian economy. The RBA released the minutes of its most recent policy meeting. The minutes noted an improvement in employment numbers and said the economy was improving. However, in the Mid-year Economic and Fiscal Outlook, which can be considered a report card for the economy, the Treasury lowered its projections of growth rates made in May, from 2.75% to 2.5% in fiscal year 2016, and from 3.25% to 2.75% in fiscal year 2017. The report added that the country’s debt and budget deficit will be larger than previously expected.

On Tuesday US consumer inflation numbers were weak, which was expected. Core CPI, which is carefully monitored by the Federal Reserve, remained at 0.2% for a third straight month. CPI dipped to 0.0%, down from 0.2% in November. Both indicators matched their forecasts, so these readings are unlikely to make any waves in the markets. More importantly, these numbers, although pointing to a weak inflation picture in the US, are unlikely to deter the Fed from a widely expected rate hike later on Wednesday

Wednesday (Dec. 16)

  • 13:30 US Building Permits. Estimate 1.16M
  • 19:00 US FOMC Economic Projections
  • 19:00 US FOMC Statement
  • 19:00 US Federal Funds Rate. Estimate <0.50%
  • 19:30 US FOMC Press Conference

*Key releases are highlighted in bold

*All release times are GMT

AUD/USD for Wednesday, December 16, 2015

AUD/USD December 16 at 10:40 GMT

AUD/USD 0.7189 H: 0.7216 L: 0.7179

AUD/USD Technical

S3 S2 S1 R1 R2 R3
0.7063 0.7063 0.7100 0.7213 0.7349 0.7440
  • AUD/USD posted small gains in the Asian session but has retracted in European trade.
  • 0.7213 remains busy and has switched to a resistance role.
  • There is support at the round number of 0.7100.
  • Current range: 0.7100 to 0.7213

Further levels in both directions:

  • Below: 0.7100, 0.7063 and 0.6931
  • Above: 0.7213, 0.7349, 0.7440 and 0.7526

OANDA’s Open Positions Ratio

AUD/USD ratio is unchanged, reflective of the lack of movement we are seeing from the pair. Long and short positions remain close to an even split, indicative of a lack of trader bias as to what direction the pair will take next.

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.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental and macroeconomic analysis, Kenny Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in major online financial publications including, Seeking Alpha and FXStreet. Kenny has been a MarketPulse contributor since 2012.