The Australian dollar has entered a holding pattern ahead of tomorrow's US rate decision

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The Australian dollar finished Tuesday’s session flat against the greenback but weaker against the crosses, a performance that was largely driven by last minute positioning adjustments from traders ahead of tomorrow’s US FOMC rate decision rather than fundamental factors.

Here’s the Aussie dollar scoreboard as at 7am AEST.

AUD/USD 0.7536 , -0.0003 , -0.04%
AUD/JPY 82.95 , 0.08 , 0.10%
AUD/CNH 5.1139 , -0.0079 , -0.15%
AUD/EUR 0.6721 , -0.0007 , -0.10%
AUD/GBP 0.5910 , -0.0046 , -0.77%
AUD/NZD 1.0435 , -0.0033 , -0.32%

“The AUD has been steady to a fraction lower overnight though not breaking out of its recent range,” said David de Daris, an economist at the National Australia Bank.

“It’s tested lower overnight toward 0.7525, having hit its high yesterday just above 0.7560 in the immediate aftermath of yesterday’s still upbeat NAB Business Survey for May.”

De Garis says that lower base metals prices, along with another sharp decline in iron ore, may have contributed to the Aussie’s weakness.

The one notable move for the Aussie overnight came against the UK pound with the latter benefiting from a stronger-than-expected CPI report for April and speculation that last week’s general election result may lead to a “soft” Brexit from the EU.

It must also be remembered that the pound has been smashed in recent sessions, and was always prone to a reversal ahead of key central bank events.

The AUD/USD hourly chart shows the Aussie is in a holding pattern ahead of tomorrow’s US FOMC rate decision.

AUD/USD Hourly Chart

Turning to Asian trade on Wednesday, there are a couple of data releases that may be of interest to traders.

In Australia, the latest Westpac-MI consumer sentiment report for June will be released at 10.30am AEST. That will be followed 90 minutes later by the release of industrial output, urban fixed asset investment and retail sales figures for May from China.

While seemingly important releases, they’ve struggled to generate much of a market reaction in recent times. One suspects that they’d have to produce a shock in order to generate any significant reaction in the Aussie.

Should that not eventuate, it’s likely to be a quiet session ahead of the US FOMC’s rate decision that will arrive in the early hours of tomorrow morning in Australia.

According to de Garis, with markets close to fully priced for another 25 basis point hike from the Fed, most interest from this meeting will not be on the actual rate decision but rather the FOMCs forecasts for the Fed funds rate — known in the markets as “the dots” — along with the Fed’s plans on reducing the size of its balance sheet.

“US interest rate markets are fully priced for a hike tomorrow, but only half priced for one more by the end of this year just shy of the March Fed’s own median forecast of another by year end. But thereafter the Fed’s dot points and market pricing clearly diverge, the Fed’s median for the end of 2018 requiring three more to 2.00-2.25% against market pricing of just over 1.5%,” he says.

“Other watch points tomorrow morning will be statements on running down the Fed’s balance sheet and the extent of views on recent softer inflation and wages.”

The Fed’s interest rate decision, along with the bank’s updated economic projections, will arrive at 4am AEST. That will be followed 30 minutes later by Fed chair Janet Yellen’s scheduled press conference.

Adding some extra spice to this meeting, US CPI and retail sales figures for May will be released earlier in the session at 10.30pm AEST.

Outside of the US, markets will also receive unemployment figures from the UK along with unemployment and industrial production data for the eurozone.

Given the AUD/USD is range trading ahead of these key events, Greg McKenna, chief market strategist at AxiTrader, says that a break of 0.7566 or 0.7515/20 is needed to break the current stalemate.

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