The Australian dollar is showing limited movement on Wednesday, as AUD/USD trades at 0.7040 in the European session. On the release front, Australian CPI posted a gain of 0.4%, above the estimate. In the US, all eyes are on the Federal Reserve, which will release a policy statement and set the benchmark interest rate for January.
The Aussie remains has posted strong gains, climbing 100 points since the start of the week. The Aussie was bolstered by positive inflation numbers on Tuesday. Australian CPI, one of the most important economic indicators, posted a gain of 0.4% in the 4th quarter, beating the forecast of 0.3%. Trimmed Mean CPI, which excludes the most volatile items which make up CPI, gained 0.6% in the 4th quarter, ahead of the estimate of 0.5%. We’ll get a look at Import Prices later on Wednesday, with the markets braced for a decline of 0.8%. Despite a strong start to the week, the risky Aussie is down about 250 points in January as it struggles to stay above the psychologically significant 0.70 level.
It’s showtime for Janet Yellen and Co., as the Federal Reserve concludes a 2-day meeting and issues a policy statement later on Wednesday. The markets are predicting that the Fed will leave interest rates at the current level of 0.25%. Economic conditions have changed significantly since the Fed raised rates in mid-December, with global stock markets down and oil prices sharply lower since the historic rate hike in December. According to Morgan Stanley (NYSE:MS) Chief Economist Ellen Zentner, financial conditions have tightened by the equivalent of 4 rate hikes, so the Fed could hold off from further tightening until mid-2016 or even later. The January statement could well be a balancing act, with the Fed acknowledging weaker economic conditions in the US while emphasizing that the economy is still growing and moving in the right direction. The collapse of oil prices has contributed to the weak inflation picture in the US, with current inflation levels well below the Fed target of 2.0%. Low inflation, which is indicative of slack in the economy, remains a significant concern for Fed policymakers, who are unlikely to approve another rate hike without an upturn in inflation. Traders should be prepared for possible volatility in the currency markets following the Fed policy statement.
AUD/USD Fundamentals
Tuesday (Jan. 26)
- 19:30 Australian CPI. Estimate 0.3%. Actual 0.4%
- 19:30 Australian Trimmed CPI. Estimate 0.5%. Actual 0.6%
Wednesday (Jan. 27)
- 10:00 US New Home Sales. Estimate 501K
- 10:30 US Crude Oil Inventories. Estimate 3.8M
- 14:00 FOMC Statement
- 14:00 Federal Funds Rate. Estimate
- 19:30 Australian Import Prices. Estimate -0.8%
Upcoming Key Events
Thursday (Jan. 28)
- 8:30 US Core Durable Goods Orders. Estimate 0.0%
- 8:30 US Unemployment Claims. Estimate 281K
*Key events are in bold
*All release times are EST
AUD/USD for Wednesday, January 27, 2016
AUD/USD January 27 at 6:00 EST
AUD/USD Open: 0.7004 Low: 0.6979 High: 0.7052 Close: 0.7034
AUD/USD Technical
| S3 | S2 | S1 | R1 | R2 | R3 |
| 0.6754 | 0.6848 | 0.6931 | 0.7063 | 0.7100 | 0.7213 |
- The pair posted slight gains in the Asian and has leveled off in European trade
- 0.6931 is providing support
- There is resistance at 0.7063
- Current range: 0.6931 to 0.7063
Further levels in both directions:
- Below: 0.6931, 0.6848, 0.6754 and 0.6625
- Above: 0.7063, 0.7100 and 0.7213
OANDA’s Open Positions Ratio
AUD/USD ratio is showing little movement, reflective of a lack of movement from the pair. The ratio remains close to an even split between long and short positions, indicative of a lack of trader bias as to which direction the pair will take next.