AUD/USD stuck in tight range ahead of FOMC meeting, RBA to maintain ultra-easy policy stance, decide on future bond purchases in July

AUD/USD traded in a narrow range on Tuesday ahead of a keenly anticipated Federal Reserve policy meeting and after the Reserve Bank of Australia released the minutes from its June meeting.

The RBA minutes showed that policy makers would not raise the official cash rate until actual inflation in Australia was sustainably within the 2% to 3% target range, a condition that might probably be achieved as early as 2024.

Meanwhile, the central bank’s board is expected to decide upon future bond purchases at a meeting in July. Many analysts project that the RBA will not roll over the three-year bond yield target of 0.10% from the April 2024 bond to the November 2024 maturity, but will probably announce another round of bond purchases.

The RBA’s current AUD 100 billion bond-purchasing round is due to expire in early September.

“Observing that the bond purchase program had been one of the factors underpinning the accommodative conditions necessary for the recovery, members thought it would be premature to consider ceasing the program,” the RBA minutes stated.

“Scaling back the amount purchased or spreading it over a longer period (and thus reducing weekly purchases) at this stage would lead to a stronger AUD and thus a tightening of financial conditions,” David Plank, head of Australian economics at Australia and New Zealand Banking Group, was quoted as saying by Reuters.

“As such we think the choice for the RBA comes down to repeating the program again or keeping weekly purchases at A$5 billion a week but without specifying a total,” he added.

As of 9:06 GMT on Tuesday AUD/USD was edging down 0.27% to trade at 0.7689, while moving within a daily range of 0.7687-0.7717. The major currency pair has retreated 0.51% so far in June, following a 0.26% gain in May.

In terms of economic calendar, today market players will be paying attention to the May reports on US retail sales and industrial production due out at 12:30 GMT and 13:15 GMT respectively.

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 6:30 GMT on Tuesday, up from -15.2 basis points on June 14th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7710
R1 – 0.7726
R2 – 0.7742
R3 – 0.7758
R4 – 0.7774

S1 – 0.7694
S2 – 0.7678
S3 – 0.7662
S4 – 0.7646