The Australian dollar strengthened for the second day and is currently the best performing currency against the greenback, and the exchange rate may continue to push higher going into the Asian trade as the economic docket reinforces expectations for a rate hike by the Reserve Bank of Australia. The AUD/USD advanced to a high of 0.9328 following the drop in the unemployment rate, and remains 70pips higher from the open after moving nearly 120% of its average true range, but the rally appears to be losing steam as the 30-minute RSI falls back from overbought territory. As a result, we may see the aussie-dollar pare the overnight advance and fill-in the gap from the 120-SMA at 0.9254 as investors scale back their appetite for risk. Nevertheless, investors are pricing a 75% chance for a 25bp rate hike by the RBA in February according to Credit Suisse overnight index swaps, while a Bloomberg News survey shows 15 of the 18 economists polled forecasts the central bank to raise the benchmark interest rate to 4.00% as policy makers aim to normalize policy this year, and the rise in interest rate expectations may lead the AUD/USD to test the 2009 high at 0.9408.
The Swiss Franc lost ground against the U.S. dollar, with the exchange rate rising to a high of 1.0229 on Wednesday, and the USD/CHF may continue to trend higher over the remainder of the week as the pair appears to have carved out a near-term bottom above 1.0130. The dollar-loonie remains 30pips higher on the day after moving only 73% of its ATR, but the lack of momentum to hold above the 50-Day SMA at 1.0222 paired with the drop in the 30-minute RSI may push the exchange rate lower and leave price action confined within the 240-SMA (1.0215) and the 120-SMA (1.0183) throughout the U.S. trade. As a result, we could see the USD/CHF maintain the narrow range from earlier this week and continue to trend sideways as investors weigh the outlook for future policy.
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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com
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