Australian Dollar Decline Could Restart Soon: Today's Outlook for the AUS Dollar

At mid-day in London we see:

• The Pound to Australian Dollar exchange rate is 0.44 pct higher at 1.7076. (See why the Pound Sterling has enjoyed a fresh rally higher in our daily live coverage.)
• The Australian Dollar to Pound exchange rate is at 0.5856.
• The Australian Dollar to US Dollar is flat at 0.9352.

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Australian Dollar in a mere short squeeze

The Aus Dollar has put in an improved performance over the past month; is this the beginning of a return of Aussie strength?

Quashing the view that we are seeing the beginning of a prolonged recovery is ANZ Research who say:

"We remain of the view that the AUD is in the midst of a short squeeze, precipitated by better regional activity data and the news of Summers’ withdrawal from the race for US Federal Reserve Chairman earlier this week," say ANZ Research in a client briefing.

ANZ say their tentative expectations are that this will have run its course by around USD0.95 or USD0.96. Anywhere above those levels would be starkly inconsistent with longer term fundamentals.

Short-term outlook: Aus dollar is strong, but where is the carry through?

Luc Luyet at MIG Bank says:

"AUD/USD has breached its strong resistance at 0.9345, but has thus far failed to failed to move decisively above it. The mild price correction thus far favours a short-term positive bias. Monitor the short-term consolidation between the support at 0.9224 and the resistance at 0.9394. Another resistance is at 0.9666.

"In the long-term, the break of the strong support at 0.9388 (04/10/2011 low) opens the way for a further medium-term decline, whose potential downside risk lies near the key support at 0.8067 (28/05/2010 low)."

Emmanueal Ng at OCBC Bank:

"Despite the more ambivalent than expected RBA minutes, the AUD-USD eventually floated higher in tandem with the majors. For today, the pair may retain a slightly positive bias pending the FOMC with 0.9400 still expected to serve as a near term cap while supports are expected towards 0.9300 and then 0.9250.

"On other fronts, NZ GDP numbers are also due late Wednesday with the NZD-USD receiving an early but transient boost from dairy prices. In the interim, the AUD-NZD may be expected to remain slightly top heavy post RBA minutes."

Next 24 hours for the Australian Dollar

The immediate and most fundamental threat to the Australian currency comes in the form of the US Federal Reserve interest rate and policy decision release at 19:00 London time.

Markets will keep a keen eye on the subsequent press briefing for guidance on how the US Fed will cut back its super-easy monetary policy programme.

"The Fed’s decisions are at least expected to slow or even partially reverse the pace of the recent AUD, NZD and CAD recovery. On the other hand, we note that a EUR-AUD break below 1.42 going forward may trigger new sales towards the 1.40-1.38 area," say UniCredit Bank.

"The high betas (AUS, NZ Dollars included) may rally even if the Fed relents and tapers modestly at a 10 billion dollar pace, as the market has generally priced in that scenario already. Nevertheless, even a modest start of a taper could provide support for the dollar longer term as it would signal a significant change of course in US monetary policy," says Boris Schlossberg at BK Asset Management.