There was a curious reaction with Australian currency pairs minutes after the recent Consumer Price Index (CPI or inflation) data showed the country slipping slowly but surely into deflationary territory.
As the release showed lower CPI levels, a print that should bring lower rates as the central bank’s mandate is to keep inflation at more elevated levels, the AUD related pairs surged all over the board, with AUDUSD, AUDNZD, AUDCAD, etc. squeezing shorts.
However, as it turned out later in the trading day, it was only related to the FOMC (Federal Open Market Committee) release as by the time the statement in the United States was released, the AUD gains vanished.
The whole Wednesday saw the dollar drifting in consolidation as market participants waited for the Fed to come and save the day. The last economic data was not at all that convincing, therefore many traders expected the Fed will track back its much-anticipated rate hike, but they didn’t. The statement was rather hawkish as it contained keywords like “solid recover” instead of “strong recovery”, and so on.
This emphasized a strong path for the US economy, and they should, as the US is growing at something like 4% growth while the rest of the developed world barely puts something above the zero line.
That being said, we are going in a straight line for a Fed hike and I would say it is about to happen next time they meet, six weeks from now.
This makes the FOMC minutes to be released in a couple of weeks very important as they may contain clues about what the members discussed and we may have a pretty good idea about what to expect next.
All in all, the US dollar is flying across the board and things won’t change much in the near future.
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Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
