The Australian dollar is back in the 'death zone' ahead of a key economic data release

Photo by Philipp Guelland/Getty Images

The Australian dollar pushed higher overnight, thanks largely to a renewed bout of US dollar weakness following the release of the minutes of the US Federal Reserve’s February monetary policy minutes.

First, here’s the scoreboard as at 8am AEDT.

  • AUD/USD 0.7707 , 0.0033 , 0.43%
  • AUD/JPY 87.12 , -0.12 , -0.14%
  • AUD/CNH 5.2833 , 0.0159 , 0.30%
  • AUD/EUR 0.7291 , 0.0008 , 0.11%
  • AUD/GBP 0.6185 , 0.0032 , 0.52%
  • AUD/NZD 1.0701 , -0.0006 , -0.06%

After trading just below the 77 cent level for most of the overnight session, the AUD/USD pushed higher following the release of the Fed minutes, largely on the back of renewed US dollar weakness.

David de Garis, director of economics at the National Australia Bank, said the tone of the statement was not as bullish as many in markets were expecting, causing the US dollar to weaken in the immediate aftermath of the release.

“Many FOMC members saw a hike ‘fairly soon’ providing the economy is on track,” said de Garis in his morning note. “Fairly soon is more evasive than say ‘soon’.”

Alongside the reluctance from the Fed to firm up the expected timing of its next interest rates increase, de Garis said there were also comments emphasising the gradual pace of hiking rates, tinged with concerns about downside risks of further dollar strength against upside risks from fiscal stimulus.

That caution saw the Aussie pop higher as a consequence, taking the AUD/USD back above 77 cents, a region that it’s struggled to overcome in the past.

We’ve nicknamed it the “death zone” given the Aussie’s recent track record above this level, trying and failing on several occasions to bust through selling resistance in recent months.

The daily chart below tells the recent story.

AUD/USD Daily Chart

Whether the Aussie can push higher today will likely be determined by the release of Australia’s December quarter business capital expenditure (CAPEX) report at 11.30am AEDT.

While parts of it will feed directly into next Wednesday’s Australian GDP release, the CAPEX report is unique in that expectations for expenditure, rather than what has been actually spent, is what markets tend to focus on.

Today, markets expect CAPEX to have declined by 0.5% in the quarter. The first estimate of 2017/18 CAPEX is tipped to come in at $84.4 billion, almost unchanged from the first estimate released for the current financial year.

This 10-second guide has more information on what to expect, including what markets are likely to focus on.

Outside of the CAPEX report, markets will also receive German GDP along with jobless claims, house prices and Chicago Fed national activity index from the United States later in the session.

Fresh from the release of the Fed minutes overnight, markets will also hear from FOMC members Lockhart and Kaplan during the session, with most interest likely to fall on Kaplan’s speech given he’s a voting member in 2017.

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