Forex Traders Brace for Fed Statement; Aussie Plunges on Weak Consumer Inflation Data

On Tuesday, the U.S. Federal Open Market Committee kicked off its two-day meeting and is scheduled to release its statement on monetary policy Wednesday afternoon at 2:00 pm ET. The central bank is widely expected to leave interest rates unchanged, but investors will be eyeing its monetary policy statement for clues on the timing of the next rate hike.

The AUD/USD plunged following the first quarterly decline in inflation in more than seven years. The consumer price index fell 0.2 percent in the three months to March, the first fall since the first quarter of 2008. That brought Australia’s annual inflation rate to 1.3 percent, well below the Reserve Bank’s target of 2 to 3 percent, which increases the chances of a Reserve Bank of Australia interest rate cut. The Australian Dollar/U.S. Dollar was last trading at 0.7639, down 0.0107 or -1.39%.

The NZD/USD fell in sympathy with the Australian Dollar after the release of a weaker-than-expected Australian consumer inflation report. The Kiwi finished at 0.6873, down 0.0024 or -0.35%. Traders are pricing in a 55 percent chance Reserve Bank Governor Graeme Wheeler will cut the official cash rate to 2 percent on Thursday to try to spur inflation back within his 1-percent to 3-percent target band.

The USD/JPY lost a little ground on Wednesday, settling at 111.071, down 0.225 or -0.20% on position-squaring ahead of today’s Federal Reserve interest rate decision and release of its latest monetary policy statement. The Bank of Japan will issue its monetary policy statement early Thursday.

The USD/CNY traded flat-to-lower, finishing at 6.5015, down 0.0002 or -0.00%, with corporate dollar demand seen offsetting a slightly stronger central bank midpoint and suspected state bank intervention.

Prior to the market opening, the People’s Bank of China set the mid-point rate at 6.4837 per dollar, 0.07 percent firmer than the previous fix at 6.4882, reflecting the dollar index’s retreat against a basket of major currencies overnight.

Traders cited a bout of dollar buying right after the market opening, however, state-owned banks were selling dollars around 6.4900, in an effort to support the Yuan’s value on behalf of the central bank. There was also a rumor that Apple bought dollar yesterday, forcing the state banks to intervene to keep dollar liquidity in balance.

The EUR/JPY was last trading at 125.571, down 0.207 or -0.16% as investors squared positions ahead of Thursday’s Bank of Japan monetary policy decision.

Many of the major market players expect the BoJ to take some form of easing measures, including an increase in the purchases of stocks and a cut in interest rates. Reuters said last week that the BoJ is considering expanding its negative rate policy to bank loans and cut rates further. In January, the central bank implemented a policy of negative interest rates. According to Bloomberg, the BoJ could consider new steps if policymakers decide to lower the negative 0.1 percent interest rate applied to some bank reserves parked with the central bank.