US Dollar Main Driver Of Price Action Ahead Of FOMC

The main driver of price action is the US dollar which touched a two year low as hopes for a stimulus package increased after Senate Majority Leader McConnell acknowledged Biden as the President-elect and said the Senate would not adjourn for the year without a relief package.

• AUD/USD and NZD/USD are both slightly lower on the session, giving back a fraction of the move higher in US hours. Broadly positive data from Australia and New Zealand were largely ignored. Westpac Leading Index rose 0.46%, while Markit Composite PMI rose to 57.0 from 54.9 previously.
• New Zealand Treasury released its half year economic fiscal update. The release outlined a slightly more positive case than the previous update. 2020/21 annual average GDP growth is forecast at 1.5% compared to the previous estimate of -0.5%, while the 2020/21 bond programme forecast has been cut to NZD 31.7bn. Forecasts for unemployment were downgraded to 6.9% from 7.8%.
• Seeing little price action in JPY pairs; the BoJ Rinban operations were in line with previous purchases while data earlier in the session showed that exports fell more than forecast at -4.2% against an expectation of +0.4%, imports also fell more than expected at -11.1% compared to -9.5% expected. The data was ignored despite the negative implications of weaker global economy (lower exports) and weak domestic demand (lower imports).
• GBP/USD has followed a similar pattern, coming off recent highs at the start of Asia; there is still optimism that a deal will get done after positive murmurings from several officials.
• The PBOC fixed USD/CNY at 6.5355, 79 pips lower than the previous day and resuming the trend of a stronger yuan, after a weaker fix yesterday.
• Market focus will no doubt be on the upcoming FOMC meeting. The Fed are expected to keep rates on hold, some are expecting an increase in asset purchases or a version of operation twist where short term bonds are sold to buy longer term bonds.