- The Aud/USD is strengthened due to the weakness of the US dollar before the Fed rates decision and SEP projections.
- Analysts are currently valuing a rate cut in September; A change in the narrative towards a hard or moderate line posture will probably influence the Australian pair.
- Australia will publish your Employment data on May on Thursday, establishing the tone for the Bank of the Australian Reserve.
The Australian dollar (AUD) is gaining ground against the US dollar (USD) on Wednesday, supported by a weakest dollar while market participants expect the result of the Federal Reserve Policy Decision (FED).
At the time of writing, the AUD/USD is testing the simple mobile average (SMA) of 10 days about 0.6506, registering intradic earnings of approximately 0.60%.
The pair remains sensitive to changes in the feeling of risk and the fluctuations of the USD while market participants evaluate the moment of a possible feat cut of the Fed.
It is widely expected that the Federal Open Market Committee (FOMC) maintains its reference interest rate without changes in the 4.25%–4.50%range.
However, attention will be focused on the updated summary of Economic Projections (SEP), which will provide new guidelines on the Fed policy perspective, including inflation projections, growth and future career of interest rates.
According to the CME Fedwatch tool, markets currently value a probability of 56.4% of a 25 basic points rate cut for September. If the projections indicate less cuts or a more gradual schedule, the USD could be strengthened, which would press the aud/usd down. On the contrary, moderate reviews or downward adjustments in inflation expectations could reinforce bets for a policy change before expected, supporting the Australian.
The press conference of the president of the FED, Jerome Powell, at 18:30 GMT will be crucial for the feeling of the market. His comments on the progress of disinflation and global economic risks will influence the expectations of any policy change later this year.
What to expect from Australia’s employment data
The operators will also be observing closely the publication of the Employment Report of May of Australia on Thursday. Consensus forecasts point to a 25,000 job gain, below the strong April 89,000. The unemployment rate is expected to remain stable at 4.1%. Any surprise up to hiring or a fall in unemployment could feed the speculation that the Bank of the Australian Reserve (RBA) could consider a more aggressive position in the next meetings.
The aud/USD remains stable above 0.6500
The AUD/USD is currently being negotiated about 0.6522, just below the resistance at the 61.8% fibonacci setback level at 0.6549. The impulse has slowed down, and the torque is now testing short -term support in the lower limit of a wedge pattern. The simple mobile average (SMA) of 10 days at 0.6507 provides immediate support.
A decisive breakdown below this area, particularly below the 50% fibonacci setback in 0.6428, which aligns with the 200 -day SMA, would confirm a bassist reversal and open the door towards a deeper support at 0.6307 (level of 38.2% of Fibonacci).
Aud/USD Daily Graph
On the positive side, a daily closure is needed above 0.6550 to change the impulse again in favor of the upward, with the following important resistance at 0.6722 (78.6%setback). The relative force index (RSI) in 56 indicates a neutral impulse, suggesting that it could follow consolidation or a directional breakout, depending on the tone of the Fed and the next data publications.
FAQS Central Banks
Central banks have a key mandate that consists in guaranteeing the stability of prices in a country or region. Economies constantly face inflation or deflation when the prices of certain goods and services fluctuate. A constant rise in the prices of the same goods means inflation, a constant decrease in the prices of the same goods means deflation. It is the Central Bank’s task to keep the demand online by adjusting its interest rate. For larger central banks, such as the US Federal Reserve (FED), the European Central Bank (ECB) or the Bank of England (BOE), the mandate is to maintain inflation about 2%.
A central bank has an important tool to raise or lower inflation: modify its reference interest rate. In precommunicated moments, the Central Bank will issue a statement with its reference interest rate and give additional reasons of why it maintains or modifies it (cut it or the SUBE). Local banks will adjust their savings and loan rates accordingly, which in turn will make it difficult or facilitate that citizens obtain profits from their savings or that companies ask for loans and invest in their businesses. When the Central Bank substantially rises interest rates, there is talk of monetary hardening. When it reduces its reference rate, it is called monetary relaxation.
A central bank is usually politically independent. The members of the Central Bank Policy Council go through a series of panels and hearings before being appointed for a position in the Policy Council. Each member of that council usually has a certain conviction on how the Central Bank should control inflation and the consequent monetary policy. Members who want a very flexible monetary policy, with low types and cheap loans, to substantially boost the economy, while comprising with inflation slightly greater than 2%, are called “pigeons.” Members who prefer higher types to reward savings and want to control inflation at all times are called “hawks” and will not rest until inflation is located at 2% or just below.
Normally, there is a president who directs each meeting, has to create a consensus between the hawks or the pigeons and has the last word when the votes must be divided to avoid a draw to 50 on whether the current policy must be adjusted. The president will pronounce speeches, which can often be followed live, in which he will communicate the current monetary position and perspectives. A central bank will try to boost its monetary policy without causing violent oscillations of the fees, the actions or their currency. All members of the Central Bank will channel their position towards the markets before a monetary policy meeting. A few days before a monetary policy meeting is held and until the new policy has been communicated, the members are prohibited from speaking publicly. It is what is called a period of silence.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
