AUD/USD trips down below 0.6930 as traders brace for the Fed

• AUD/USD remains heavy as Fed’s decision approaches, around 0.6920s.
• Sentiment remains positive, but volatility is expected, so caution is warranted.
• ANZ Analysts expect a 50 bps rate hike by the RBA at its next meeting.

The AUD/USD slumps ahead of the FOMC monetary policy decision after hitting a daily high at 0.6957, but solid resistance ahead, with the 50-day EMA and a four-month-old downslope trendline lurking around 0.6960-68 area, sent the major down, below the July 26 low at 0.6921. At the time of writing, the AUD/USD is trading at 0.6927.

AUD/USD is heavy as traders prepare for the Fed

Traders’ mood is still positive ahead of the FOMC’s decision. US equities are trading in the green, while the greenback begins to erase its early gains and is almost flat. The US Dollar Index is at 107.220, 0.03% up. Meanwhile, the short-end of the yield curve, namely the 2-year bond yields, trims its earlier gains and sits at 3.056%, higher than the 10-year bond coupon, which sits at 2.761%, a signal that implies recession.

Earlier in the North American session, US data was released and gave mixed signals. The Department of Commerce unveiled June’s Durable Good Orders, which rose more than estimated, while the Trade Balance showed that the deficit shrank, illustrating the resilience of the US economy. Nevertheless, housing data continues to show deterioration, as May’s Pending Home Sales tumbled the most since April 2020, shrinking by 20% YoY, vs. the 13.8 contraction in the previous month.

In the meantime, during the Asian session, Australia’s Q2 CPI rose below expectations, with headline numbers at 6.1% YoY and trimmed mean at 4.9% YoY. Expectations of a Reserve Bank of Australia (RBA) 75 bps rate hike were lowered, as most market participants have fully priced in a 50 bps increase.

In a note, analysts at ANZ bank wrote, “This doesn’t change our view on the RBA’s near-term meetings, where we expect 50bp hikes. The target cash rate is still well below the RBA’s estimates of neutral, and we expect the labor market to continue tightening. This will prompt the RBA to take the cash rate above the lower bound of what it deems the neutral range. As such, we maintain our 3.35% year-end forecast.”

AUD/USD Key Technical Levels