AUD/USD trades little changed, poised for a back-to-back weekly drop on Fed taper outlook, RBA meeting in focus

Australian dollar was slightly changed against its US counterpart on trading Friday, as prospects of maintained stimulus reduction by the Fed led to lower demand for high-yielding currencies, such as the Aussie.

AUD/USD reached a daily low at 0.8939 at 4:50 GMT, after which the pair consolidated at 0.8957, down 0.10% for the day and set for a 0.23% weekly loss. Support was likely to be received at February 27th low, 0.8905, while resistance was to be encountered at February 26th high, 0.9026.

Federal Reserve Chair Janet Yellen said that the central bank will probably continue with its plan to gradually reduce the scale of monthly asset purchases, while policy makers are trying to determine whether the weakness economy has recently demonstrated is due to temporal factors.

“Unseasonably cold weather has played some role,” she said in her testimony in front of the Senate Banking Committee on Thursday. “What we need to do, and will be doing in the weeks ahead, is to try to get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to softer outlook.”

Yellen indicated that the Federal Reserve is abandoning its numerical threshold, that has linked any decision to increase borrowing costs to nations rate of unemployment. She also reiterated what the central bank has already said in a number of statements – that the scale back of monetary stimulus will continue at a “measured pace”, while the bond-purchasing program will likely be exited in the fall.

In addition, the Department of Commerce said yesterday that US durable goods orders, fell 1% in January, following a revised 5.3% drop in the previous month. Analysts had anticipated that bookings for durable goods or those meant to last at least three years will decline 1.7% last month.

Orders for durable goods, which exclude volatile transportation items, rose 1.1% in January, confounding experts’ forecasts of a 0.3% drop. Decembers core durable goods orders have been revised down to a 1.9% decline from a previously estimated 1.6% drop.

A separate report revealed that the number of initial jobless claims in the United States rose by 14 000 to reach 348 000 during the week ended on February 22nd, while analysts had projected a decline to 335 000. This higher-than-expected number of Americans, who filed for unemployment benefits last week, boosted concerns that nations labor market is demonstrating an uneven recovery.

Meanwhile, in Australia, private sector lending increased 0.4% in January compared to a month ago, while preliminary estimates pointed to a 0.5% gain. In annual terms, lending expanded 4.1% in January in line with expectations, following another 3.9% expansion in December.

Australian dollar slid against peers after the Bureau of Statistics reported yesterday that private capital expenditures in the country, an indicator for future economic activity, declined 5.2% in the final quarter of 2013 compared to the third quarter, or the most since September 2009.

This data urged Citigroup Inc. to revise down its forecast regarding Australias Gross Domestic Product for the fourth quarter of 2013 to 0.4% from 0.6% previously. The company also projects a decline in spending by 25% during the next fiscal year.

Reserve Bank of Australia is expected to hold a meeting on monetary policy on March 4th. On Thursday traders saw a 36% probability that the central bank may reduce its benchmark interest rate from the current record low level of 2.50% by the end of August, according to swaps data compiled by Bloomberg News. The odds of such a move were 18% on Wednesday.

The yield on Australian benchmark 10-year bonds fell to 4.03%, or the lowest level since February 5th, while the yield on nations three-year bonds reached 2.83%, or the lowest since February 4th.

Elsewhere, the Aussie was steady against the euro, with EUR/AUD cross up 0.03% on a daily basis to trade at 1.5302 at 8:06 GMT. AUD/NZD was losing 0.49% to trade at 1.0661 at 8:07 GMT. Earlier the pair touched a daily low at 1.0655, which has been the lowest level since January 30th.