Article by AlgosysFx Forex Trading Solutions
The US dollar is believed to gain opposite the Australian dollar in reduced appetites for risk as the Federal Reserve begins its two-day policy meeting today. Meanwhile, demand for the Aussie is foreseen to continue declining as the government’s mid-year economic and fiscal outlook detailing a series of spending cuts is viewed to provide more ammunition for the Reserve Bank of Australia to implement rate cuts.
Despite encouraging signs of recovery in the housing sector and a lower unemployment rate, the Fed is believed to uphold its cautious stance and keep its stimulus program in place. More than a month after the central bank unveiled a third round of quantitative easing that purchases $40 Billion of mortgage-backed securities per month, analysts see little reason for the FOMC to reverse course this week. Threats including the US election, the fiscal cliff, the European debt dilemma and the Chinese economic slowdown and the still fragile signs of domestic revival are deemed likely to convince the board to retain its policy stance. With the economy still adding fewer than 150,000 jobs a month, Fed Chairman Ben Bernanke will likely reaffirm his concern over the slow pace of job creation and underscore the remaining headwinds to the US economy.
Today’s lone economic data up for release is deemed to emphasize the fragility of the economic recovery. The Federal Reserve Bank of Richmond is believed to report that manufacturing conditions in the area slowed this month. The Richmond Manufacturing Index is estimated to come in at 3 points in October, edging lower from the 4-point reading recorded in the previous month. Slowing demand abroad and still lackluster levels of business confidence likely caused the slight easing in factory conditions. Amid apprehensions over the state of the US economy and the Fed’s policy meeting, the Greenback is foreseen to shine today.
Over to the Land Down Under, analysts say that the onus on the RBA to keep the economy growing just got heavier after the government unveiled another round of savings in its mid-year economic and fiscal outlook yesterday. Treasurer Wayne Swan even added pressure, saying that the returning the budget to surplus provides the central bank maximum flexibility to cut rates further. The weakening outlook for the budget and for the commodities boom is widely expected to spur the RBA slash rates again in its November meeting. Considering these, a short position for the AUD/USD is recommended.
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