US Dollar, DXY, APAC Market Sentiment, FOMC, Technical Outlook – Topics to Talk about
- Asia Pacific markets may turn cautious ahead of US Federal Reserve interest rate decision
- Russia’s President Vladimir Putin speaks on grain reaction to the upside on Wednesday
- DXY is supported by the key Fib level, but the oscillators are signaling potential weakness going forward
Asia Pacific Outlook Wednesday
Asia-Pacific markets could open lower after a weak trading session in New York. Traders took a defensive turn ahead of tomorrow’s FOMC rate decision. The probability of a 100 basis point rate hike fell to 17.3% via overnight index swaps (OIS), from 32% after last week’s US CPI report. That hasn’t stopped traders from selling government bonds. The 10-year yield rose to 3.604%, down just 13 basis points from the 2011 high. An updated set of growth and inflation targets via the Summary of Economic Forecasts (SEP) and ‘Scatter Chart’ will also be in focus .
The Chinese yuan fell against the stronger greenback, with USD/CNH now trading above the 7-level. An aggressive daily yuan fix failed to dampen CNH selling. The People’s Bank of China (PBOC) set its yuan reference rate at 6.9468 against the US dollar. The Bloomberg estimate saw a fix of 6.9984. The central bank left its 1-year and 5-year lending rates (LPRs) unchanged, as expected.
The risk-sensitive Australian dollar fell more than 0.5% against the USD. A dovish tone in the RBA’s September minutes, released yesterday, showed some members’ appetite to slow the pace of rate hikes, stating: “All else equal, members saw the case for a slower pace of rate hikes as stronger level of cash rate rising.” The pace of tightening could slow as early as next month. Market bets show a 1:2 chance of a 50 basis point rate hike. Deputy Governor Michele Bullock will speak on the RBA’s review of bond purchases.
The Australian leading index Westpac will go over the wires today. AUD/NZD has risen to its highest level since August 2015. A narrowing of New Zealand’s spreads against major peers in recent weeks has hurt the Kiwi dollar’s fundamentals. The RBNZ’s early and anticipated policy response is now reflected in a weaker NZD as key rivals continue to tighten at an accelerated pace. Elsewhere, grain prices rose ahead of a speech by Russian President Vladimir Putin, seen as a possible escalating effort to annex eastern parts of Ukraine.
US Dollar Technical Outlook
The DXY Index continues to be supported by the 23.6% Fibonacci retracement level and now a rising 20-day simple moving average (SMA). Price is within striking distance of 110.78 multi-decade high, but a moderating MACD oscillator and negative divergence on the RSI are worrying signals for bulls. A drop below 23.6% Fib would bring the 26-day exponential moving average into focus.
DXY index – daily chart
Chart created with TradingView
— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas use the comments section below or @FxWestwater on twitter