U.S. Dollar Gives Back Gains in Asian Session as Investors Eye Fed Policy Statement

The AUD/USD showed some resilience on Wednesday for the first time in four sessions, closing at .7365, up .0008 or 0.11%. Profit-taking and position-squaring ahead of the U.S. Federal Reserve’s interest rate decision at 1800 GMT were likely behind the light buying.

In other news, a new report from Westpac showed consumer sentiment dipped in June following a bounce in confidence after the Reserve Bank cut interest rates in May.

The Westpac-Melbourne Institute Index of Consumer sentiment dipped 1 percent to 102.2 from 103.2 in May. Readings above 100 indicate optimists outnumber pessimists.

“Last month’s surprise rate cut from the RBA was the main catalyst behind May’s rally and although confidence has slipped back a touch in June, this is a fairly common pattern following an interest rate-driven bounce,” wrote Westpac chief economist Bill Evans.

The NZD/USD bounced back following four days of selling pressure. The last trade showed the Kiwi at .7012, up 0.0020 or +0.28%. Profit-taking and position-squaring ahead of the U.S. Federal Reserve’s interest rate decision at 1800 GMT were likely behind the light buying.

In other news, New Zealand’s current account balance rose more-than-expected in the last quarter, according to official data released on Tuesday. In a report from Statistics New Zealand, the country’s current account balance rose to a seasonally adjusted 1.31B, from -2.61B in the preceding quarter. Traders were looking for a reading of 1.05B.

In the year, the current account deficit was $7.5 billion, or 3% of gross domestic product, from a revised deficit of $8 billion, or 3.2% of GDP, in calendar 2015. The improvement was driven by an increase in the services surplus and a decrease in the primary income deficit, according to Statistics NZ.

New Zealand’s current account balance turned to a surplus in the first quarter as tourism drove up the services balance and foreigners earned less from their local investments. A government statistician said, “Spending by international visitors increased $2.2 billion in the year ended March 2016, to reach a record annual high in spending” of $13.3 billion.

The USD/JPY posted an inside move on Wednesday which is indicative of investor indecision and impending volatility ahead of the release of the U.S. Federal Reserve’s monetary policy statement later today and the Bank of Japan’s policy decision on Thursday. After these events, the focus will shift back to Brexit and whether the UK will remain a member of the European Union. The Forex pair last traded 106.185, up 0.107 or +0.10%.

Ahead of this week’s Bank of Japan meeting, traders say strong resistance around 105.50 has kept the Yen from surging towards 100 per dollar – levels which may assume would force the Bank of Japan to intervene against its currency.

The debate now among traders is whether the BOJ will take policy steps on Thursday aimed at weakening the currency, when a vote for a Brexit next week would be expected to drive more buying of the yen globally as a safe haven for capital.

The EUR/JPY is relatively flat on Wednesday after several days of selling pressure at 118.975, up 0.098 or +0.08%. On Tuesday, the Yen surged to its strongest level against the Euro for more than three years as the chances of Britain voting next week to leave the European Union grew, pushing investors toward the security of Japan and other traditional safe havens.

Also pressuring the Euro against the Japanese Yen was the news that the benchmark German government bond yield turned negative for the first time due to worries that Britain might vote next week to leave the European Union.

Germany’s 10-year Bund yield turned negative for the first time on Tuesday after a series of opinion polls showed a big lead for the “leave” camp in Britain’s EU referendum.