AUD/USD awaits RBA's governor Lowe

• AUD/USD could struggle to hold on to post FOMC gains on RBA Lowe.
• FOMC dovish tone and trade talk optimism supporting upside in AUD/USD.

AUD/USD is steady in early Asia, consolidated between a tight range having moved up from the 0.6832 lows of earlier in the week, boosted on trade talk optimism and a dovish Federal Reserve. AUD/USD is currently trading at 0.6885 at the time of writing as traders await a speech from RBA's governor Lowe scheduled for 12.35 AEST in Adelaide today. 

The greenback was on the backfoot leading into and post the FOMC meeting and outcome overnight that offered a dovish outlook for the months ahead. The FOMC today left the fed funds rate unchanged, but the language in the statement and in Powell's presser on the outlook sunk the dollar and helped risk appetite along, fueling a bid in stocks and the antipodeans. The FOMC took out the reference to being “patient” on borrowing costs and was signalling that cuts are likely in the foreseeable future. The caveat to that, however, was the growth of the economy of which the FOMC seems to be quiet content with at this stage. However, as analysts at ANZ Bank point out, growth was described as “moderate” rather than “solid”, clouded by “uncertainties”, and the inflation forecasts were reduced.

"In the first dissent since Powell took the helm, St Louis Fed Chair Bullard voted for an immediate rate cut. The dot plots were unusually divided, with eight of 17 committee members expecting a cut by year end, eight seeing no change, and one forecasting a hike. The market will strongly side with the would-be cutters unless the data flow changes tone. In the press conference, Chair Powell noted that he intends to serve his full four-year term," the analysts at ANZ explained.

In the background, trade is a key issue and following a phone call with President Xi that broke the one-month long stalemate, Trump's optimism and subsequent announcements that he will be meeting Xi at the G20 to resolve trade matters have boosted US stock markets and risk appetite as a whole. 

Looking ahead

For the day ahead, there is no domestic Aussie data but RBA Governor Lowe is speaking at 12.35 AEST in Adelaide on “The Labour Market and Spare Capacity” which will no doubt be of interest to Aussie traders. Despite weak USD sentiment, expect support for the AUD to wane ahead of Lowe’s speech, with risks to the downside as he will likely provide greater clarity around the timing of the next cut to the cash rate - The Minutes this week indicating that the central bank intended to ease policy further. 

AUD/USD levels

Analysts at Commerzbank explained that AUD/USD has eroded its 78.6% retracement at .6857 BUT the daily RSI has not confirmed this new low and has diverged suggesting a loss of downside momentum.

"We would allow for some near term consolidation/correction higher. It remains directly offered below the 55 day ma at 0.7000, 0.7022 the June peak and the April peak at 0.7069. Targets remain the 0.6738 January 2019 low and 0.6725, the 2016-2019 support line (connects the lows). Below 0.6738/25 would target the 78.6% retracement at 0.6125."