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Talking Points

  • All Eyes on FOMC Meeting Minutes as Traders Gauge QE3 Possibilities
  • Australian Dollar Broadly Sold as RBA Signals Overt Dovish Policy Shift

Most major currencies were little changed against the US Dollar (ticker: USDollar) overnight as markets waited for minutes from the March FOMC meeting to come across the wires. Broadly speaking, the outcome seems likely to reflect the relatively upbeat tone of the policy statement while reiterating a commitment to press on with accommodative monetary policy, which increasingly looks like a reference to the pledge of near-zero rates through late 2014 rather than additional non-standard measures.

With this in mind, the report’s market-moving potential will be found in any discussion of the various policy options open to the Federal Reserve in the event that additional easing is needed. Specifically, markets will want a gauge of how high the bar for triggering a third round of asset purchases has been set and what preliminary steps can be taken (like an extension of “Operation Twist”, so-called “sterilized QE”, and so on) before the Fed decides to embark on such a course.

Simply put, traders will want to get a sense for the likelihood of a QE3 program and the environment needed to produce it. If officials’ commentary is judged to signal that another expansion of the balance sheet is relatively likely, the US Dollar is likely to come under pressure across its major pairings. Alternatively, a sense that QE3 is fading as a probable turn for Fed policy stands to boost the greenback. On balance, we are partial to the second scenario.

The Australian Dollar slumped following the RBA monetary policy announcement. The central bank kept the benchmark interest rate unchanged at 4.25 percent as expected but issued an overtly dovish policy statement where Governor Glenn Stevens warned that economic growth has proven to be “somewhat lower than earlier estimated”. While adding that it appeared “prudent” to see upcoming inflation data “before considering a further step to ease monetary policy,” Stevens left no ambiguity about the dovish policy lean now at work.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Monetary Base (YoY) (MAR)

-0.2%

-

11.3%

1:00

CNY

China Non-manufacturing PMI (MAR)

58.0

-

48.4

1:30

AUD

Retail Sales s.a. (MoM) (FEB)

0.2%

0.2%

0.3%

1:30

JPY

Labor Cash Earnings (YoY) (FEB)

0.7%

0.1%

0.0%

4:30

AUD

Reserve Bank of Australia Rate Decision

4.25%

4.25%

4.25%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

-

GBP

Halifax House Price (3M/Y) (MAR)

-1.7%

-1.9%

Medium

-

GBP

Halifax Plc House Prices s.a. (MoM) (MAR)

-0.2%

-0.5%

Medium

8:30

GBP

PMI Construction (MAR)

53.4

54.3

Medium

9:00

EUR

Euro-Zone PPI (YoY) (FEB)

3.5%

3.7%

Low

9:00

EUR

Euro-Zone PPI (MoM) (FEB)

0.5%

0.7%

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3272

1.3430

GBPUSD

1.5981

1.6065

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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