USD To Find Bid On Broader Fundamentals, AUD At Risk On RBA Policy

By David Song, Currency Analyst

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

9830.8

9844.1

9816.27

0.07

55.72%

The Dow Jones-FXCM U.S. Dollar Index(Ticker: USDollar ) is 0.07 percent higher from the open afterbeing oversold on Friday, and the greenback should continue toretrace the decline from earlier this month as we expect theFederal Reserve to conclude its easing cycle this year. However,the technical outlook continues to paint a bearish picture for thedollar as the downward trending channel takes shape, and we may seeformer support around 9,900 act as new resistance as marketparticipants maintain bets for another round of quantitativeeasing.

The USDOLLAR appears to be finding short-termsupport around the 50.0 percent Fibonacci retracement (9,830) asthe relative strength index bounces back ahead of oversoldterritory, but the bearish divergence in the oscillator foreshadowsfurther declines for the greenback as it maintains the downwardtrend carried over from the previous month. Nevertheless, asthe developments coming out of the U.S. continue to point to high inflation,heightening price pressures certainly limit’s theFOMC’s scope to implement another round of quantitativeeasing, and we should see the central bank sound a bit more hawkishin the second-half of the year as Fed officials anticipate to see astronger recovery. In turn, the shift in the policy outlook shouldprop up the dollar over the near-term, and the index could becarving out a higher low ahead of May as the RSI bounces back froma low of 35. Should the dollar continue to consolidate around9,830, we may see the reserve currency build a short-term baseahead of the highly anticipated Non-Farm Payrolls report due out onFriday, and the development may ultimately spark a sharp reversalin the index should the data instill an improved outlook for theregion.

The greenback advanced against three of the four components, led by a 0.53 percent decline in the Australian dollar, and the high-yielding currency may face a sharp selloff over the next 24-hours of trading should the Reserve Bank of Australia embark on series of rate cuts in the coming months. Although the RBA is widely expected to lower the benchmark interest rate by 25bp to 4.00%, market participants are looking for more than 100bp worth of rate cuts over the next 12-months according to Credit Suisse overnight index swaps as growth and inflation falters. In turn, if Governor Glenn Stevens continues to endorse the easing cycle at the rate decision due out tonight, we should see the AUDUSD give back the rebound from earlier this month, and the pair may make another run at 1.0200 as interest rate expectations deteriorate.

--- 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/daily_briefing/daily_pieces/trading_news_reports/2012/04/30/USD_To_Find_Bid_On_Broader_Fundamentals_AUD_At_Risk_On_RBA_Policy.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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