AUD/USD: big pip round trip on nothing new from the FOMC minutes

 

• AUD/USD popped a relatively wild 26 pips on the release of the FOMC minutes as the greenback sold off to test below the 95 handle for a second attempt to break out below it.
• AUD/USD since fallen back from the post FOMC minutes highs of 0.7370 and currently trades at 0.7350, holding above pre-FOMC minute levels down at 0.7344.

The FOMC minutes noted that the FOMC generally expects further gradual hikes ahead. The board members, however, also see that trade, housing and emerging markets as downside risks. The members also expect GDP growth to slow in second half of the year but remain above potential.

Further key notes:

• Officials note rates moving closer to estimates of neutral.
• Further gradual hikes to help keep econ. 
• Some see fiscal as upside risk, few see as the future downside.
• Trade poses important source of uncertainty.
• Discussed implication of yield-curve flattening.
• The weighed timing of when to stop calling rates accommodative.
• Many officials see inflation stable near 2% m-term.
• Officials discussed bank counter-cyclical capital buffers.

The Aussie has been a proxy to the Chinese/US trade conflict, the crisis in the TRY and EMs and is also affected by commodity prices. That is to say, it can be a big mover on whatever the sentiment is for the greenback and hence we have seen the most volatility in the DM currencies through the Aussie over this event. 

To date, the Aussie has found a lift in  U.S. President Donald Trump's anti-rate-hike rhetoric, the CNH correcting, Australia's PM Malcolm Turnbull's leadership vote victory, a bounce in the CRB index above the neckline with sustained gains onto the 191 handle and a general risk on approach in the markets this week. 

Looking forward

However, going forward much depends upon the outcome of trade talks, (although Trump said that he doesn't expect much from China trade talks this week), and the market's sentiment for the Lira and contagion risks. Another strong rise in USD/TRY will likely be spreading the contagion fears around desks once again and it's only because local markets have been closed this week that there have not been too much of a reaction to the growing U.S. pressure for the release of U.S. pastor Andrew Brunson. 

The biggest factor, though, will stay with the Fed. The RBA minutes included the suggestion that a faster Fed rate hike path would be beneficial to the Aussie economy as it will result in a lower AUD - so all eyes now turn to Powell's delivery on Friday's speech at the Jackson Hole. 

AUD/USD levels

The Aussie has been sent to better selling levels if you are a bear and last week's hammer was the signaling point on the charts. The start of the week's bullish continuation stick has been followed by more volatile price action and supply at the 50-D SMA - this is a negative where the squeeze has run into the supply. A break above here needs to happen to engage more demand for 0.7480 targets.

However, Valeria Bednarik, chief analyst at FXStreet explained that in the 4 hours chart, the price remains firm above a bullish 20 SMA, with this last converging with the 50% retracement of the mentioned slide at around 0.7330, also above its 100 SMA:

"Technical indicators in the mentioned chart offer upward slopes within positive territory, having completed a downward correction from overbought readings, adding to the bullish case."