USD Index To Consolidate Ahead Of Key Event Risks, AUD At Risk On RBA

By David Song, Currency Analyst

DJ FXCM Dollar Index

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9878.94

9899.38

9870.04

-0.07

50.47%

The Dow Jones-FXCM U.S.Dollar Index ( Ticker: USDollar ) is 0.07 percent lowerfrom the open after giving back the overnight advance to 9,899, andthe greenback may continue to pare the rebound from the previousweek as market participants increase their appetite for risk.Indeed, the downward trend in the 30-minute relative strength indexinstills a bearish outlook for the dollar, and we may see a sharpselloff in the reserve currency as it appears to be carving out adouble-top just below 9,900. However, as the fundamental outlookfor the world’s largest economy continues to improve, therecent weakness in the dollar should be short-lived, and wemaintain a bullish forecast for the near-term as the FederalReserve continues to scale back its dovish tone for monetarypolicy.

Indeed, the slew ofmajor event risk on tap for later this week may keep the dollarwithin a narrow range over the next 24-hours of trading, but wewill be keeping a close eye on the relative strength index as itthreatens the downward trend carried over from the previous year.Should the RSI clear 60, the development would reinforce ourbullish call for the USD, and we may see the dollar ultimately makeanother run at the 78.6 percent Fibonacci retracement around 10,118as it carves out a higher low coming into March. Nevertheless, asthe highly anticipated U.S. Non-Farm Payrolls report comes into focus,we’re expecting to see employment increase 210K in February,and the more robust recovery in the labor market could prop up thegreenback as it dampens speculation for another round ofquantitative easing. In turn, we should see the Federal Reservecontinue to strike an improved outlook for the world’slargest economy, and the central bank may see scope to startnormalizing policy towards the end of the year as growth andinflation picks up.

Three of the four components advanced against the dollar, led by a 0.47 percent advance in the Australian dollar, while the Australian dollar is struggled to hold its ground ahead of the Reserve Bank of Australia’s interest rate decision on tap for 3:30 GMT. Although the RBA is widely expected to keep the benchmark interest rate at 4.25 percent, the central bank may sound a bit more dovish as China – Australia’s largest trading partner – curbs its growth forecast for 2012, and Governor Glenn Stevens may keep the door open to lower borrowing costs further in order to encourage a stronger recovery. According to Credit Suisse overnight index swaps, market participants see the RBA lowering the cash rate by nearly 50bp over the next 12-months, but we may see interest rate expectations deteriorate this week should the central bank curb its fundamental assessment for the $1T economy. As the AUDUSD maintains the range carried over from the previous month, the policy statement accompanying the rate decision could finally produce a direction bias for the pair, and we are looking for a move to the downside as the RSI maintains the downward trend from earlier this year.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Followme on Twitter at @DavidJSong

To be added to David's e-mail distribution list,send an e-mail with subject line "Distribution List" todsong@dailyfx.com.

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DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/us_dollar_index/daily_dollar/2012/03/05/USD_Index_To_Consolidate_Ahead_Of_Key_Event_Risks_AUD_At_Risk_On_RBA.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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