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USD Looks Higher On Bernanke Testimony, AUD Weighed By Rate Outlook

USD Looks Higher On Bernanke Testimony, AUD Weighed By Rate Outlook

2012-07-17 16:00:00
David Song, Strategist
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Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10131.24

10155.94

10093.59

0.14

114.98%

USD_Looks_Higher_On_Bernanke_Testimony_AUD_Weighed_By_Rate_Outlook_body_ScreenShot053.png, USD Looks Higher On Bernanke Testimony, AUD Weighed By Rate Outlook

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is 0.14 percent higher from the open after moving 115 percent of its average true range, and the greenback may continue to recoup the losses from the previous week as the Fed’s semi-annual monetary policy report dampens the prospects for another large-scale asset purchase program. As we see a higher low being carved out around the 10,100 figure, the index looks poised for a move back above 10,200, but we will be closely watching the 30-minute relative strength index as the oscillator struggles to hold above 70. As the RSI falls back from overbought territory, we may see the dollar consolidate throughout the North American trade, but we should see a larger move to the upside as the Fed continues to soften its dovish tone for monetary.

USD_Looks_Higher_On_Bernanke_Testimony_AUD_Weighed_By_Rate_Outlook_body_ScreenShot054.png, USD Looks Higher On Bernanke Testimony, AUD Weighed By Rate Outlook

Although Fed Chairman Ben Bernanke kept the door to expand monetary policy further, it seems as though the committee is moving away from quantitative easing as the central bank head sees the world’s largest economy on a more sustainable path. Indeed, Mr. Bernanke put increased pressure on Congress to address the ‘fiscal cliff’ as it heightens the uncertainties surrounding the fundamental outlook, and it seems as though the FOMC will revert back to a wait-and-see approach as the board continues to carry out ‘Operation Twist.’ As we have the Fed’s Beige Book on tap for Wednesday, the survey may continue to highlight a brightening outlook for the region, and we may see the rebound from the overnight low (10,093) gather pace as market participants scale back bets for QE3. As there appears to be a short-term ascending channel with the broader trend, we will maintain our bullish outlook for the dollar, but we would like to see a close above the 78.6 percent Fibonacci retracement around 10,118 to see further advances this week.

USD_Looks_Higher_On_Bernanke_Testimony_AUD_Weighed_By_Rate_Outlook_body_ScreenShot055.png, USD Looks Higher On Bernanke Testimony, AUD Weighed By Rate Outlook

Three of the four components weakened against the greenback, led by a 0.36 percent decline in the Euro, while the Australian dollar climbed 0.20 percent as the Reserve Bank of Australia strikes a neutral tone for monetary policy. As the RBA endorses a wait-and-see approach in the policy meeting minutes, it seems as though the central bank will keep the benchmark interest rate at 3.50% at the August 7 meeting, but the central bank may continue to embark on its easing cycle as China – Australia’s largest trading partner – remains at risk for a ‘hard landing.’ According to Credit Suisse overnight index swaps, the RBA is still expected to lower borrowing costs by another 100bp over the next 12-months, and we will preserve a bearish outlook for the AUDUSD as interest rate expectations falter.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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