The Australian dollar is drifting ahead of tonight's US FOMC rate decision

Amory Ross Team Alvimedica GettyImages

It was not the most exciting period for Australian dollar traders overnight with the currency drifting slightly lower as the US dollar strengthened.

The AUD/USD currently sits at .7556, down 0.15% for the session, as traders bid up the US dollar ahead of tonight’s US FOMC rate decision.

The move in the greenback came despite a slight pullback in US bond yields, suggesting that much of the moves overnight were driven by position adjustments ahead of the Fed.

Here’s the scorecard as at 7.55am AEDT.

  • AUD/USD 0.7556 , -0.0011 , -0.15%
  • AUD/JPY 86.71 , -0.21 , -0.24%
  • AUD/CNH 5.2145 , -0.0035 , -0.07%
  • AUD/EUR 0.7124 , 0.0022 , 0.31%
  • AUD/GBP 0.6216 , 0.0024 , 0.39%
  • AUD/NZD 1.0914 , -0.0005 , -0.05%

Given the price action over the past few days, and the relatively quiet economic calendar in Asia, it promises to be another lacklustre Asian session for traders on Wednesday.

In Australia, the Westpac-MI consumer sentiment index for March will be released at 10.30am AEDT. That will be followed one hour later by new car sales from the ABS for February. Neither release will cause a stir in the Aussie.

That’s largely reflective of the regional calendar as well with a variety of second-tier releases arriving during the session that are unlikely to generate any volatility in markets.

Thankfully, later in the session, that will all change.

In the US, CPI and retail sales figures for February will be released, along with the Empire State manufacturing index for March. In Europe, eurozone and UK unemployment figures will be the highlights.

Then, at 5am AEDT, the moment markets have been waiting for all week will arrive — the Fed will release its March interest rate decision.

With markets all but certain that the FOMC will lift the fed funds rate by 0.25%, it will be the updated economic projections — particularly the latest Fed dot plot which tracks individual FOMC members views on the likely path for interest rates in the future — along with Janet Yellen’s press conference, that will be the main focus for financial markets.

“We expect the FOMC to keep its description of the balance of risks to the economic outlook as ‘roughly balanced’ and leave its economic forecasts and ‘dot plot’ of three Funds rate hikes in 2017 relatively unchanged given the uncertainty around fiscal policy,” says Joseph Capurso, senior currency strategist at the Commonwealth Bank.

“Given the recent USD strength, and that a Fed rate hike is fully priced, we see risks the USD gently eases after the FOMC meeting,” he adds.

The outcome of the Dutch general election will also arrive shortly after the Fed decision, creating the potential for even further volatility for markets in early Asian trade on Thursday.

AUD/USD 5-Minute Chart

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