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Aussie gains a big figure on hawkish minutes

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Aussie gains a big figure on hawkish minutes

Dollar weakness continued to reflect market sentiment and the perception that yields will edge lower. Recent inflation data has been relatively tame despite the climb in energy prices. Most market participants are keeping their power dry ahead of Ben Bernanke’s testimony in front of congress is his bi-annual discussion on monetary policy formerly known as the Humphrey-Hawkins testimony.

The Australian dollar increased by a big figure in response to the perceived hawkishness of the Reserve Bank of Australia’s meeting minutes. The minutes underscore the importance of next week’s CPI figures, and the concerns the RBA has over inflation. It also showed that the decline in the currency raised some concern about inflation prospects, as export prices have climbed. Rates in Australian increases slightly making the chance of an ease less plausible at the RBA’s next meeting.

All eyes will be on FOMC Chairman Ben Bernanke beginning tomorrow as he begins a two day testimony in front of both houses of congress. On May 22, Bernanke brought up the idea of tapering, but then downplayed this notion following the meeting minutes of the FOMC which was released last week. The Chairman reiterated that tapering was not tightening, and that rates would remain accommodative for an extended period of time. Traders will be looking for any comments from the Fed chairman that are hawkish, that target an earlier than expected tapering of bond purchases to short treasuries and buy the dollar.

The Australian dollar tested resistance near a downward trend line resistance level at .9250. A close above this level would likely test the June highs near 0.9600. Momentum is increasing with the MACD generating a buy signal as the index moved from negative to positive territory. The RSI broke higher, and is still printing near 46 which is in the middle of the neutral range.

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