AUD/USD Monthly Range In Focus With Australia CPI, Fed Meeting On Tap

AUD/USD continues to trade in a defined range after taking out of the April 2018 high (0.7813), and it remains to be seen if key data prints coming out of Australia will influence the exchange rate as the Reserve Bank of Australia (RBA) carries out its quantitative easing (QE) program.

Image of DailyFX economic calendar for Australia

The update to Australia’s Consumer Price Index (CPI) is anticipated to show the headline reading for inflation holding steady at 0.7% during the last three-months of 2020, and the data may do little to sway the monetary policy outlook as “members agreed that the Board's policy measures had lowered interest rates across the yield curve, which was assisting the recovery.”

In turn, it seems as though the RBA will retain the current approach for monetary policy after announcing plans to purchase “$100 billion of government bonds of maturities of around 5 to 10 years over the next six months” in November, and Governor Philip Lowe and Co. may stick to the same script at the next meeting on February 2 as the central bank pledges to “keep the size of the bond purchase program under review.”

At the same time, the Federal Open Market Committee (FOMC) appears to be in no rush to switch gears as Chairman Jerome Powell and Co. vow to support the US economy “until substantial further progress has been made toward reaching the Committee's maximum employment and price stability goals,” and the US Dollar may continue to reflect an inverse relationship with investor confidence as the Fed’s balance sheet climbs to a fresh record high ($7.415 trillion) in January.

As a result, key market themes may continue to sway AUD/USD as the RBA acknowledges that “the improvement in risk sentiment has also been associated with a depreciation of the US dollar and an appreciation of the Australian dollar,” with the tilt in retail sentiment resurfacing like the behavior seen in the second half of 2020.

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