Aussie dollar hangs tough as markets eye Janet Yellen’s decision

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The Australian dollar was hanging tough around the .7555 cents level this morning as the global forex markets keep an eye on the US Federal Reserve’s interest rate decision.

“It’s an idiosyncratic forex market at the moment and traders are focusing on the merits of individual currencies,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

He added that the Brexit issue hit the British pound and political issues hurt the Euro

“The Aussie dollar was able to hang relatively tough after support in the guise of higher iron ore and base metals prices combined to support it above 75 cents,”

According to McKenna, it doesn’t mean that the Aussie is out of the woods.

“But equally it’s not to say the Aussie is about to get hammered again. It’s just a reflection of the absence of US dollar moves Aussie specific information is driving the price,” he added.

But the fate of the Aussie can be affected by what the US Fed says tomorrow as it announces its decision on interest rates.

“What Janet Yellen says tomorrow – what the dot-plot reveals about the direction and frequency of interest rate rises, will decide the fate of the Aussie against the US dollar,” McKenna said.

“My sense is that it (US Fed decision) will be US dollar positive. My sense is that the Fed will signal at least another 2 hikes this year and another 3 to 4 in 2018,”

“Chair Yellen and her colleagues have been very patient and let the US economy and inflation lift toward their goals. Now they’ll be trying to normalise policy so that they don’t have to hike aggressively at some point later this year,” McKenna said.

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In the meantime, the jockeying continues with the Euro and pound reversing the strength of recent days overnight with loses around half a per cent each.

Sterling looks like it was hit by the parliamentary victory of Theresa May which now allows her to trigger article 50 when she decides its time.

The Euro is under pressure as the proximity of the Dutch election and Francois FIllon’s problems raise political risk on the continent. The EUR is back at 1.0607 this morning.

“Both currencies, indeed the whole of the currency universe, are waiting on the Fed. My sense is there is still room for surprise by the market sceptical of the Fed’s recent change of stance and rhetoric,” McKenna said.

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