The dollar edged higher against its counterparts as market jitters over aggressive policy tightening from China to curtail an overheating economy. The data released this morning saw a lower than anticipated reading in new home sales, down 7.6% from a decline of 11.3% in November.
The Fed announced its monetary policy decision, leaving interest rates unchanged as expected at 0-0.25%. The accompanying policy statement was also largely unchanged, emphasizing current conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The FOMC also reiterated its intention to terminate its MBS purchase plan at the end of Q1. Although the decision and accompanying policy statement were largely inline with expectations, the voting was not unanimous. Voting against the decision was Kansas City Fed President Thomas Hoenig, who believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period of time was no longer warranted.
Australia CPI Higher than Expected
Inflation data from Australia released fuelled market expectations for a rate hike next week from the RBA. The consumer price index edged out consensus estimates, climbing by 0.5% in Q4 on a quarterly basis and rising by 2.1% on an annualized basis. The higher than anticipated inflation report raises the likelihood for a 25-basis point rate hike from the Reserve Bank of Australia to 4.0%.
AUDUSD pulled back to 0.8940 despite the stronger than anticipated inflation data. Support for the pair will emerge at 0.89, followed by 0.8870 and 0.8830. Subsequent floors are seen at 0.88, backed by 0.8765 and 0.8740. On the topside, resistance is seen at 0.8970 followed by 0.90 and 0.9045. Additional gains will target resistance at 0.9070 backed by 0.91 and 0.9130.
Euro Drifts Toward 1.40
The euro slid toward the 1.40-figure against the dollar following the Fed's monetary policy announcement in afternoon trading. EURUSD will target resistance at 1.4060, followed by 1.41 and 1.4140. Subsequent resistance is eyed at 1.4170, backed by 1.42 and 1.4230. On the downside, support starts at 1.40 followed by 1.3960 and 1.3930. Additional floors will emerge at 1.39, followed by 1.3850 and key support at 1.38.