AUD/USD Quiet Ahead Of Fed Policy Statement

The Australian dollar has edged higher in Wednesday trading, after taking one on the chin the day before, when it lost around once cent against the US currency. In today’s European session, AUD/USD was trading just shy of the 0.95 level. In economic news, Australian Leading Indexes were positive. Both the CB Leading Index and the MI Leading Index improved from the month before. In the US, today’s highlight is the FOMC policy statement, and the markets will likely react after hearing from the Federal Reserve. On Tuesday, the markets got their first glimpse of US key data, and the results were mixed. Building Permits and Core CPI, both key events, came in as expected. However, Housing Starts disappointed, as it fell below the estimate.

On Tuesday, the Aussie took a tumble courtesy of the RBA, which released the minutes of its previous policy meeting. Policymakers left the door open for further rate cuts down the road, which would make the Australian dollar less attractive to investors. The RBA also stated that the Australian dollar could fall further due to weak demand for Australian exports. AUD/USD responded by shedding more than one cent.

All eyes will be glued to the US Federal Reserve on Wednesday, as the FOMC releases a highly anticipated policy statement. The markets will be particularly interested in what the Fed has to say with regard to its quantitative easing program. Speculation has been growing that the Fed could scale back QE later in the year, and this has had a very strong impact on stocks, commodities and the US dollar. The Federal Reserve has repeatedly stated that it will stick with the current program until it sees an improvement in the US economy, especially in the employment market. Currently the Fed purchases $85 billion in assets every month. If the Fed does take action or even hint at a move to tighten QE, we can expect the dollar to move higher against the major currencies.

G8 summits are often photo-ops with little substance, as confident world leaders reiterate their commitment to take steps to improve the global economy. However, this year’s G8 meeting in Northern Ireland served more than the usual fare, as the G8 leaders used the occasion to announce the start of negotiations on a free trade agreement between the European Union and the United States. The stakes are very high – the EU and US produce 50% of the global output, and a third of world trade. The deal would be the largest bilateral trade deal ever, and could add up to $100 billion to the economies of each partner. Negotiations will get underway in Washington next month, with a deal expected to be signed by the end of 2014. Although Australia is not a member of the G8, a deal of such magnitude is bound to have a affect on the country’s export sector, which is a critical component of the economy.
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AUD/USD June 19 at 11:50 GMT

AUD/USD 0.9454 H: 0.9574 L: 0.9440