Uncertainty Over Fed Decision Keeps FX Major Pairs in Consolidation - 17.12.2013

The Reserve Bank of Australia meeting minutes revealed that despite the bank maintained the cash rate unchanged at 2.50%, it also said that the possibility to further cut the rate in future meeting is open. Both the Australian dollar and the US dollar are soft amid uncertainty over their central banks policies with the AUDUSD consolidating in 0.8965/0.8908 tight range.

The US dollar is mostly steady against its major counterparties ahead of Fed monetary policy meeting on Dec. 17-18. Market participants are projecting that asset tapering will start in March 2014. However recent stronger than expected US GDP and Employment reports raised chances for a small withdrawal from current $85B monthly purchases. Furthermore, US CPI data for November are to be released today and should the inflation increases less than projected then chances are going to increase more for partially unwinding bond buying program.

In addition the US dollar index is currently trading at 79.97, slightly above 6-week low at 79.73, with the market most probably already priced in the possibility of asset tapering initiation in December. In that case we would expect the US dollar index to weaken should the Fed leave asset purchases size intact. Moreover, in technical terms the US dollar index is in down trend and that could further weigh on prices.

US Dollar Index

Elsewhere, the Euro against the US dollar approached its 6-week highs at 1.3808 underpinned by stronger Manufacturing PMI indicators. Investors for today are looking ahead for German Zew Economic Sentiment. The sterling against the greenback is also steady between 1.6348/1.6288 with CPI data to be published later today, expected at 2.2%.