USD Outlook Hinges On FOMC Minutes, AUD Slumps On Rate Expectations

By David Song, Currency Analyst

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9937.55

9951.86

9894.82

0.19

86.19%

T he Dow Jones-FXCM U.S. Dollar Index(Ticker: USDollar ) is 0.19 percent higher on the day as currencytraders scaled back their appetite for risk, and we expect to seethe bullish sentiment underlining the greenback gather pace goinginto the middle of the week as long as the Fed continues to softenits dovish outlook for monetary policy. As the dollar continues tofind interim support around 9,900, we should see the index breakoutof the downward trending channel, but we may see the descendingtriangle continue to take shape should the central bank keep thedoor open to expand its balance sheet further.

The upward trending channel in the index continues to reinforce our call for more dollar strength, but we are keeping a close eye on the bearish divergence in the relative strength index as it points to a sharp selloff in the reserve currency. As the technical outlook paints a mixed picture for the USD, we will be looking at the fundamentals to generate a clearer bias for the dollar, and the FOMC Minutes may spur increased demands for the reserve currency as Fed officials see the recovery on a more sustainable path. In turn, the policy statement may dampen speculation for another large-scale asset purchase program, and the developments could be the catalyst to push the greenback back towards the 78.6 percent Fib around 10,118 as interest rate expectations pick up.

Three of the four components weakened against the reserve currency, led by a 0.33 percent decline in the Australian dollar, and the high-yielding currency is likely to face additional headwinds over the near-term as the Reserve Bank of Australia looks to carry out its easing cycle throughout 2012. According to Credit Suisse overnight index swaps, market participants are looking for 75bp worth of rate cuts over the next 12-months, and we may see Governor Glenn Stevens shore up the ailing economy throughout the year as China – Australia’s largest trading partner – continues to face a risk for a ‘hard landing.’ As the AUDUSD carves out a key top in the first quarter, we should see the pair maintain the downward trend carried over from the previous month, and the aussie-dollar looks poised to give back the advance from earlier this year as the dovish remarks from the RBA drags on interest rate expectations.

--- Written by David Song, Currency Analyst

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

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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/2012/04/03/USD_Outlook_Hinges_On_FOMC_Minutes_AUD_Slumps_On_Rate_Expectations.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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