Fed meeting triggers greenback selling

The dominant theme in the FX space was fresh US dollar weakness on the back of the Fed meeting. 

Euro and US dollar notes
Source: Bloomberg

The highlight was the removal of the ‘patience’ reference of which many would have expected this to result in a stronger greenback. However, what made the difference was a substantial downgrade to interest rate forecasts in the dot plot analysis.

AUD/USD was waning earlier this week as the challenging fundamentals for the domestic economy reinforced the RBA’s easing bias. However, the pair has moved significantly due to US dollar weakness and I feel we could be getting some fresh selling opportunities at these levels. AUD/USD rallied from lows in the $0.7600 region and spiked to a high of $0.7848. The run didn’t last much longer than that and the resulting pullback saw the pair trade back below $0.7800.

There is a downtrend resistance line that’s been in place since September last year and currently comes in at around $0.7780. This resistance line appears to have been broken now, but given the fundamentals of the AUD are still skewed to the downside, it’ll be interesting to see how much longer the pair can hold on. In fact, some analysts feel the renewed strength in the pair is likely to lead to the RBA needing to act sooner. As a result, I would be looking to sell the pair on a retest of the top-end of the recent range which comes in around $0.7900. I feel selling in this region presents an ideal value proposition in the near term, with stops placed above the $0.8000 mark. 

AUD/USD chart

AUD/USD chart
Source: IG chart

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.