AUD underperforms as investors square positions ahead of FED rate announcement

AUD

The Australian dollar fell through trade on Tuesday edging back below the 0.76 U.S cent handle and touching intraday lows at 0.7566. Having found support early after a largely positive NAB business confidence report and improved risk appetite on preliminary reports out of Kim/Trump summit appeared positive the Australian Dollar touched highs at 0.7625 before moving lower. As investors absorb news from Singapore and brushed aside the ambiguous promises of denuclearisation and peace the AUD moved lower as attentions turn to the FOMC and its June rate statement.

The FOMC is widely expected to raise rates this week and markets will be keenly attuned to the commentary that accompanies the decision, seeking any clue the Fed may hasten the pace of monetary policy tightening. Comments from President Powell yesterday helped drive support for the worlds base currency as it appears he will hold a press conference after all meetings moving forward, a possible clue that each sitting could proffer a policy amendment. The comments forced the Aussie through support at 0.7605 and 0.7585 and we open this morning buying 0.7573 U.S cents.

Attentions now turn to commentary from RBA Governor Lowe and June consumer sentiment as drivers of domestic direction while the FOMC policy announcement remains the headline item driving the agenda today.

AUD / NZD

Expected Range: 1.0710 – 1.0880

The New Zealand Dollar remained relatively unchanged in overnight trade despite a resurgent Greenback. Opening this morning at 0.7006, the Kiwi sits at the lower end of its past 24 hour range. With little on the macro-economic calendar to drive direction the New Zealand Dollar remains flat against its counterparts with NZD/JPY and NZD/EUR largely stable. Across the Tasman, the Aussie was one of the worst underperformers during trade on Tuesday allowing the NZD to creep higher, edging through 0.9250. The domestic macro-economic calendar continues to have little to excite moving into Wednesday. Traders now turn their attention to the Federal Reserve and the USD for momentum.

GBP / AUD

Expected Range: 1.7530 – 1.7780

The Great British Pound is stronger this morning when valued against its US counterpart. The Sterling reached a high overnight of 1.3424 on the back of the British government winning the Brexit withdrawal bill vote 324 to 298. The House of Commons rejected a move to give lawmakers power to send the government back to the negotiating table if they don't like the terms of the Brexit deal struck with the European Union. As a result Theresa May’s government will retain full control which could lead to a tougher exit. From a technical perspective, the GBP/USD pair is currently trading at 1.3372.

We continue to expect support to hold on moves approaching 1.3360 while now any upward push will likely meet resistance around 1.3430.

AUD / USD

Expected Range: 0.7530 – 0.7670

The US dollar traded higher through trade on Tuesday edging upward and enjoying modest gains against a basket of major trading counterparts. With attentions largely directed to the Kim/Trump summit investors brushed aside elusive promises of denuclearisation and were reserved in extending risk appetite moves. Instead a stable CPI inflation report and somewhat hawkish commentary from Fed Chair Jerome Powel drove optimism leading into today’s FOMC rate announcement and saw the worlds base currency tick 40 points higher against the JPY and force the euro back below 1.1750.

Attentions now turn to today’s FOMC policy announcement and accompanying rate statement as a key marker driving direction through the 2nd half of the year. Fed Funds futures were largely unchanged in the lead up to today with the majority of market players pricing in a 25-basis point adjustment this week and another before year end. The moderation in expectations surrounding the pace of US monetary policy tightening has been a primary driver behind the recent Greenback slow down and ensures investors will be keenly attuned to the tone of commentary delivered. An upward hawkish bias that indicates a 4th rate hike is still on the table could help foster broader USD gains ahead of an all-important ECB policy meeting Thursday. If the ECB fails to deliver an update on the path to tapering QE the yield and interest rate gap will be further exacerbated and could see the USD enjoy short term upside as investors correct the recent Euro rally.

AUD / EUR

Expected Range: 0.6400 – 0.6500

The Euro couldn’t hold gains against the USD on Yesterday’s session, dropping 0.3% to 1.1745 in the US session after trading as high as 1.1806 during the Asian session and European open.

It was more of a USD strength story, after the relatively positive results from the US-North Korea summit, where “denuclearisation” was promised but few other details were given and Consumer Price Index coming as expected in the US, the USD gained on the back of rumours surrounding the next FED meeting. The WSJ reported that Powell is thinking of having a press conference after every FOMC meeting, suggesting they’ll be live and open to discussion which the market apparently interpreted as a sign of more rate hikes to come this year, maybe even 4 instead of the 3 priced already.

A weaker than expected ZEW reading didn’t help the Euro either. Traders will be looking closely to the next US and EU Central Bank meetings this week, from a technical perspective 1.1730 (21-day-moving-average) and 1.1840 (June 7 high) should act as short term support/resistance

AUD / CAD

Expected Range: 0.9780 – 0.9910

The loonie weakened more than 0.2% versus the USD, on the back of broad greenback strength. USDCAD rose back above 1.30, ending the session trading around 1.3015 following recent rumours surrounding the next FOMC meeting, which helped to boost the USD.

Trade tensions between Trump and Trudeau haven’t been solved and oil also edged lower, both not supportive of a better outlook for the CAD in the short term.

From a technical perspective, USDCAD will need to break above first resistance around 1.3040 for it to reach March highs of 1.3125. On the downside, a break of 1.2910 (the 20-day moving average) should act as support and if broken we could see the loonie strengthening towards 1.2850.