Dollar To Rise If Fed Minutes Dent QE3 Bets, Aussie Sold On Dovish RBA

By Ilya Spivak, Currency Strategist

Talking Points
  • All Eyes on FOMC Meeting Minutes as Traders Gauge QE3 Possibilities
  • Australian Dollar Broadly Sold as RBA Signals Overt Dovish Policy Shift

Most major currencies were little changedagainst the US Dollar (ticker: USDollar ) overnight as markets waited for minutes from theMarch FOMC meeting to come across the wires. Broadly speaking, theoutcome seems likely to reflect the relatively upbeat tone of thepolicy statement while reiterating a commitment to press on withaccommodative monetary policy, which increasingly looks like areference to the pledge of near-zero rates through late 2014 ratherthan additional non-standard measures.

With this in mind, the report’s market-moving potential will be found in any discussion of the various policy options open to the Federal Reserve in the event that additional easing is needed. Specifically, markets will want a gauge of how high the bar for triggering a third round of asset purchases has been set and what preliminary steps can be taken (like an extension of “Operation Twist”, so-called “sterilized QE”, and so on) before the Fed decides to embark on such a course.

Simply put, traders will want to get a sense for the likelihood of a QE3 program and the environment needed to produce it. If officials’ commentary is judged to signal that another expansion of the balance sheet is relatively likely, the US Dollar is likely to come under pressure across its major pairings. Alternatively, a sense that QE3 is fading as a probable turn for Fed policy stands to boost the greenback. On balance, we are partial to the second scenario.

The AustralianDollar slumped following the RBA monetary policyannouncement. The central bank kept the benchmark interest rateunchanged at 4.25 percent as expected but issued an overtly dovishpolicy statement where Governor Glenn Stevens warned that economicgrowth has proven to be “ somewhat lower than earlier estimated ”. While adding that it appeared“prudent” to see upcoming inflation data “ before considering a further step to easemonetary policy ,” Stevens left no ambiguity about thedovish policy lean now at work.

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Monetary Base (YoY) (MAR)

-0.2%

-

11.3%

1:00

CNY

China Non-manufacturing PMI (MAR)

58.0

-

48.4

1:30

AUD

Retail Sales s.a. (MoM) (FEB)

0.2%

0.2%

0.3%

1:30

JPY

Labor Cash Earnings (YoY) (FEB)

0.7%

0.1%

0.0%

4:30

AUD

Reserve Bank of Australia Rate Decision

4.25%

4.25%

4.25%

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

-

GBP

Halifax House Price (3M/Y) (MAR)

-1.7%

-1.9%

Medium

-

GBP

Halifax Plc House Prices s.a. (MoM) (MAR)

-0.2%

-0.5%

Medium

8:30

GBP

PMI Construction (MAR)

53.4

54.3

Medium

9:00

EUR

Euro-Zone PPI (YoY) (FEB)

3.5%

3.7%

Low

9:00

EUR

Euro-Zone PPI (MoM) (FEB)

0.5%

0.7%

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3272

1.3430

GBPUSD

1.5981

1.6065

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya , e-mail ispivak@dailyfx.com . Follow Ilya on Twitter at @IlyaSpivak

To be added to Ilya 's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com
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/daily_briefing/session_briefing/euro_open/2012/04/03/Dollar_to_Rise_if_Fed_Minutes_Dent_QE3_Bets_Aussie_Sold_on_Dovish_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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