Forex Market: AUD/USD hits fresh 67-week highs on broadly weaker US Dollar as markets expect dovish statement from Fed

AUD/USD extended gains from the prior trading days and touched highs not seen since mid-April 2019 on Wednesday, as the US Dollar remained broadly weaker ahead of the outcome of the Federal Reserve’s policy meeting later today.

The central bank is expected to stick to a dovish policy stance amid alarming spikes in new COVID-19 infections across several states, as market perception of the US economy’s relative outperformance has begun to fade.

Investors will be looking for any clues that the Fed will boost its purchases of longer-term debt, implement yield caps or target higher inflation than previously indicated.

With COVID-19 death toll marking single-day records in four US states on Tuesday and total confirmed coronavirus cases in the US now exceeding 4.352 million, concerns mounted that the health crisis in the country was being handled worse compared to other parts of the globe.

Meanwhile, in Australia, a government report showed earlier Wednesday that consumer prices had decreased 0.3% year-on-year during the second quarter, or at a lesser rate than expected, following a 2.2% surge in Q1. It has been the first time Australia reported deflation since Q3 1997 as the country struggled to contain the spread of the coronavirus.

As of 11:15 GMT on Wednesday AUD/USD was edging up 0.19% to trade at 0.7171, after earlier touching an intraday high of 0.7194, or a level not seen since April 18th 2019 (0.7199). The major pair has risen 0.94% so far this week and looked set for a fourth consecutive month of gains.

On today’s economic calendar, at 14:00 GMT the National Association of Realtors will report on US pending home sales. Contracts to buy previously owned homes in the country probably increased 15.0% in June compared to May, according to estimates. In May, pending home sales soared 44.3%, or at the sharpest monthly rate on record.

At 18:00 GMT the Federal Reserve is scheduled to announce its decision on monetary policy. The Federal Open Market Committee (FOMC) will probably keep the target range for the federal funds rate intact between 0% and 0.25% at its two-day policy meeting, scheduled to be concluded today, according to market expectations.

On July 17th the central bank expanded its Main Street Lending Program to ensure better access to credit for non-profit organizations (educational institutions, hospitals, social service organizations), which were in sound financial state before the pandemic.

The Minutes from the Fed’s June meeting showed policy makers remained committed to use the entire range of tools in support of the economy, while the central bank should strengthen the guidance it provides to global markets.

The policy decision will be followed by a press conference with Fed Chair Jerome Powell at 18:30 GMT.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled 14.2 basis points (0.142%) as of 10:15 GMT on Wednesday, up from 13.5 basis points on July 28th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7149
R1 – 0.7186
R2 – 0.7213
R3 – 0.7249
R4 – 0.7286

S1 – 0.7122
S2 – 0.7085
S3 – 0.7058
S4 – 0.7030