Steven Koukolous tweeted yesterday that Aussie dollars falls are never uniform events – “not many market crap-outs are a straight line & the AUD is no different.”
And so it is this morning with the Aussie a full cent off the low of the 0.8986, sitting at 0.9094.
But while the forensic analysis of why the Aussie, which was falling so hard earlier in the week, has suddenly rebounded continues, the key is that this bounce is not about the Aussie dollar in isolation but rather the US dollar and positioning in regard to the pre-FOMC decision tomorrow morning.
Indeed, the bounce in the Aussie over the course of the day to 0.9094 is a rise of 0.75%. Likewise, the Canadian dollar – the “Loonie” as it is known – is back at 1.0971 for a gain of 0.72% as USDCAD fell to 1.0971. And the Kiwi is back up at 0.8192 from a low of 0.8143.
There is a big event risk in the FOMC but traders are clearly, in buying what used to be called the commodity bloc as one, signalling that they think the status quo of the taper will be maintained with no signs of tightening tomorrow morning. Indeed WSJ Fedwatcher Hilsenrath gave succour to this crowd saying that FOMC would not change its key guidance language that rates would remain low for a “considerable period of time”.
That’s a huge risk with the expected release of the infamous dot chart of Fed Governor interest rate expectations.
Janet Yellen’s words at the press conference tomorrow have never been so important for currency traders, the US dollar and the Aussie.