AUD USD extends retreat before Fed statement

Just hours ahead of Wednesday’s widely-anticipated FOMC statement, in which the Federal Reserve will provide the current outlook with respect to US monetary policy, equity markets remain relatively well-supported, the US dollar has strengthened, and gold remains pressured. These conditions have helped to extend a sharp pullback for AUD/USD from its new eight-month high of 0.7592 that was just reached early this week.

Prior to this pullback, AUD/USD had been rising in a particularly steep trajectory since the beginning of March as commodities, most notably gold, were in the midst of staging a significant rebound and recovery. Also helping AUD/USD’s rise was the Reserve Bank of Australia’s decision a few weeks ago to keep interest rates on hold instead of cutting rates further.

Currently, as gold has come off significantly from its recent highs and the US dollar has remained supported due in part to relatively positive US economic data recently and perceptions of a comparatively hawkish Fed, AUD/USD has been unable to sustain trading above the key 0.7500 level.

While the long-term trend for the currency pair remains bearish, the short-term future of the current pullback remains dependent on a few immediate factors, including Wednesday’s Fed statement from the US, Thursday’s employment/unemployment reports out of Australia, and the short-term price direction of major commodities.

In the event of unexpectedly hawkish comments from the Fed on Wednesday, the US dollar could surge and gold should drop, both of which are bearish triggers for AUD/USD. In that event, the currency pair could continue reverting back down towards the key 0.7200 support objective, which is around the area of a convergence between the 50-day and 200-day moving averages. Any surprisingly dovish Fed comments, by contrast, should lead to a drop in the US dollar and a rebound in gold, which should then prompt a rise for AUD/USD. In that event, any sustained re-breakout above the noted 0.7500 support/resistance level could then target the 0.7700 resistance level further to the upside.