Forex Market: AUD/USD falls before FOMC policy decision, ending two-day advance

Australian dollar traded lower against its US counterpart on Wednesday, snapping a two-day advance before the outcome of Federal Reserve Banks meeting on policy, while Chinese equities tumbled, which dampened prospects for Australias largest export partner.

AUD/USD touched a session low at 0.9106 at 7:55 GMT, after which consolidation followed at 0.9114, falling 0.10% for the day. Support was likely to be received at March 18th low, 0.9064, while resistance was to be encountered at March 18th high and also the pairs highest point since December 11th, 0.9138.

At 18:00 GMT the Federal Open Market Committee (FOMC) is expected to announce its decision on interest rates and the monthly size of monetary stimulus. Experts projected that the central bank will probably cut its monthly asset purchases, which tend to devalue the national currency, by another 10 billion USD. The bank has reduced its monthly monetary stimulus to 65 billion USD this year from 85 billion USD in 2013.

The Fed is also expected to drop the 6.5% unemployment rate threshold in favor of qualitative guidance, with the latter being used as an indication of when the central bank may decide to raise borrowing costs.

In China, shares plunged overnight and the national currency depreciated to almost an 11-month low, after the collapse of a private developer triggered fears that the industry may confront defaults, while nations economy was slowing down. This put additional pressure on the Aussie.

The yield on Australian benchmark 10-year government bonds fell two basis points, or 0.02 percentage point, to reach 4.07%.

Earlier in the day a report by Westpac Banking Corp. and Melbourne Institute revealed that Australias leading index decreased 0.1% in January, matching the drop registered during the preceding month. This indicator is used as a basis for nations short-term and intermediate-term economic forecasts.

Yesterday the Australian currency received brief support, after the Reserve Bank of Australia (RBA) published the minutes from its policy meeting on March 4th, where the bank decided to leave its benchmark interest rate unchanged at 2.50%.

“There were further signs that low interest rates were providing support to activity,” the minutes stated. “The most prudent course was likely to be a period of stability in interest rates.”

In addition, Macquarie Group Ltd. pushed back its RBA rate-cut forecast to the third quarter from the second quarter, as projected previously, while pointing to a terminal rate of 2.25% for central bank’s easing cycle.

Meanwhile, the Aussie was little changed against the kiwi dollar, with AUD/NZD cross up a mere 0.01% for the day to trade at 1.0587 at 9:23 GMT. The pair touched a session high at 1.0602 at 7:05 GMT.