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Major FX pairs range-bound ahead of the Fed

While equities managed to rebound, the major FX pairs are relatively sidelined with traders exercising some caution ahead of the FOMC meeting.

Gains in equities have been mainly attributed to a rebound in manufacturing, particularly from Germany. In the US, industrial production smashed expectations with a 1.1% rise (versus 0.6% expected) and this also added to the positive sentiment. In the commodities space, copper was the biggest beneficiary rallying to a two-month high, while gold rose for a second session. Of course the big event will be the Fed on Thursday, with analysts remaining split over the tapering decision.

AUD has plenty to stew over

With commodities rising and sentiment relatively buoyant, the AUD would have been expected to be one of the main beneficiaries of the move. However, AUD/USD actually remained in a tight range around 0.895, with some key events coming up. The RBA minutes essentially rehashed what we had already heard from the RBA and as a result bearish comments about the AUD didn’t quite drive any fresh weakness.

Shortly we’ll we have the mid-year economic and fiscal outlook. The best outcome for the Australian economy is a dovish stance by the government which would effectively ease pressure on the RBA. Additionally the government is not chasing a surplus anymore. Any moves higher in the AUD will be used as opportunities to sell in the near term and I continue to feel the 0.90 region presents prime selling opportunities. The pair could test August lows in the 0.8848 region in the near term.

US CPI in focus

Apart from the AUD, there hasn’t been too much action in the FX space, with major pairs like USD/JPY and EUR/USD remaining sidelined in Asia. Later today we have the German ZEW economic sentiment reading to look out for. Traders will be hoping to see the positive momentum in German economic data continue. Another strong reading would be a positive for the euro in the near term. Over in the US, we have CPI later today and given inflation is one of the concerns the Fed has when it comes to tapering, we could see some interesting USD moves on this data.

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