Forex Market: AUD/USD eases but losses limited ahead of the FOMC policy decision, RBA Minutes with limited impact

AUD/USD was a notch weaker on Tuesday, but losses seemed to remain limited, as market players were expecting to see what the Federal Reserve’s response to the recent surge in bond yields would be, as the central bank concludes its two-day policy meeting on Wednesday.

“The market is really sitting tight waiting for the Fed decision, because the huge move in U.S. bond yields has been so key that the market really needs to see what they plan to do,” Steven Dooley, APAC currency strategist at Western Union Business Solutions, was quoted as saying by Reuters.

Market consensus points to no change in Fed’s monetary policy settings, but still, some analysts expect that the bank might attempt to calm bond markets, where yields have surged nearly 60 basis points since the last FOMC meeting.

“However, if they start to take some kind of policy action, like buying bonds further down the curve to push yields lower, then we could see the U.S. dollar move sharply lower and the Australian dollar press higher,” Dooley added.

Meanwhile, the minutes from Reserve Bank of Australia’s March policy meeting showed that rising commodity prices would probably not boost inflation in Australia, unless a significant labor market tightening is observed. Policy makers also noted that wage growth would have to be materially higher than it currently is, so that inflation can accelerate. That is why significant monetary support would be needed for some time, the minutes stated. The publication had a rather limited impact on the Aussie.

As of 10:17 GMT on Tuesday AUD/USD was edging down 0.34% to trade at 0.7728, while moving within a daily range of 0.7711-0.7756. The currency pair has edged up 0.31% so far in March, following a 0.88% surge in February.

In terms of economic calendar, today market players will be paying attention to the February data on US retail sales and industrial production due out at 12:30 GMT and 13:15 GMT respectively.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled -7.0 basis points (-0.070%) as of 9:15 GMT on Tuesday, down from -6.3 basis points on March 15th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7745
R1 – 0.7785
R2 – 0.7815
R3 – 0.7855
R4 – 0.7894

S1 – 0.7715
S2 – 0.7675
S3 – 0.7644
S4 – 0.7614