AUDUSD benefits from weak US economic data as investors prepare for the FOMC

Strong investor sentiment and threat of a dovish statement from the FOMC has helped to propel AUDUSD higher in the last few trading sessions. The pair managed to break 0.8880 overnight, albeit only briefly. The lack of market moving economic data in Asia today places even more emphasis on tomorrow/tonight’s policy meeting at the FOMC.

The market is expecting the FOMC to completely taper its asset purchases, ending the Fed’s latest QE program. This should be accompanied by a somewhat dovish statement from the FOMC – there’s no press conference this time around. If the bank elects to fully taper its asset purchases it would be prudent to accompany this decision with a statement that highlights that interest rate hikes are still a long way off, especially in light of some recent softness in US economic data.

However, given the soft inflation outlook for the US there’s the chance that the FOMC will elect to taper only 10bn as opposed to the full 15bn. This move may prompt a bout of US weakness as it would be a more dovish decision than the market expects. In this event AUDUSD may make a run for 0.8900 and possibly even higher.

From a technical perspective, AUDUSD is looking somewhat bullish. The pair recently broke out of a medium-term consolidating triangle pattern. RSI is testing a key resistance level, a break of which may strengthen AUDUSD’s current upward trend. A break back below 0.8800 may eliminate our slight bullish bias.

Source: FOREX.com