DOLLAR STRENGTHENS, UK INFLATION SLIDES TO 2.7%
The GBP pared earlier gains after the Office of National Statistics (ONS) released inflation data that missed estimates by analysts. The data showed that the country’s inflation reduced to 2.7% caused mostly by the falling petroleum and food prices. The sudden fall on inflation removes the urgency for the Bank of England (BOE) to increase interest rates as promised earlier. Tomorrow, the BOE will start the monthly meeting and release the interest rate decision a day later. Traders expect no changes on monetary policy at this time but expect two rate hikes this year.
The Australian Dollar erased gains made during the Asian markets, in part due to a stronger dollar. Early today, the Reserve Bank of Australia (RBA) released the minutes of the last meeting. The minutes showed that officials were optimistic about the economy of its key trading partners. Domestically, officials remained cautious about the housing markets, especially in Sydney where house prices have continued to decline.
The dollar index rose by about 0.40% as traders wait for the decision tomorrow from the Federal Reserve. The key drivers for the gain in the dollar was the euro which fell by 0.50% and yen which gained by 0.20%. At the same time, the price of gold continued its descent, falling by almost a percentage point.
The pair started the day rising to a high of 1.4065 but reversed course after the release of inflation data. It is now trading at 1.3985, which is the lowest level since yesterday morning. The pair’s RSI has moved from the oversold territory and is pointed higher. The same is true with the MACD which points to a slight recovery, which could continue as traders wait for the Fed’s statement tomorrow.
Last week, the AUD/USD pair started its decline from a high of 0.7915 and fell to a low of 0.7685. From yesterday, the pair has been in consolidation mode, trading at a narrow range. This narrow range could continue as traders wait for the Fed decision tomorrow. A hawkish Fed, coming a day after the RBA sounded slightly optimistic would push the pair further down, with the next support being at 0.7600.
Early today, the pair moved to the 1.2360 level before erasing gains causing the pair to trade below the important support of 1.2280. The pair is now heading to another significant support level of 1.2256 which is the lowest level since March 2. As traders wait for the Fed, this pair will continue being volatile. The pair could continue the downward trend which will see it test the 1.2200 level or reverse course to test the 1.2380 resistance level.