AUD/USD traders await the Fed as dollar slides, supporting the Aussie on the 0.70 handle

• AUD/USD is currently trading at 0.7035between a range of 0.7031 and 0.7061. 
• Eyes are on the Fed, but the RBA is likely to be more of an event.

While we await the Fed today as we watch the dollar slide following a series of less than encouraging data since the GDP, PCE, Chicago PMI and most recently, the ISM manufacturing miss, traders are goign to be concerned about next week's RBA as well which could play out to be more volatile so long as the Fed sticks to its script.

However, there is a risk that we will hear a slightly more dovish tone from the Fed, especially in light of ongoing benign inflation readings which certainly leaves the prospects of a rate cut by the end of the year on the cards, should the Fed consider the recovery at risk of slowing. If today's data is anything to go by, where the manufacturing headline PMI slumped to 52.8 from 55.3 in March, falling well short of the market expectations of 55, then there should be no surprise of such a shift from the Fed.

Meanwhile, as the dollar looks to the bottom of the 97 handle in the DXY, the Aussie can find support, but its a far stretch from being out of the woods yet. While it can be argued that signs of stabilisation in the Chinese economy have reduced the urgency of a rate cut, we have seen the weakness of the Australian Q1 CPI inflation print as well which has been strengthening the case for central bank policy action for both the headline inflation rate and trimmed mean are well below the RBA’s 2% to 3% inflation target band. However, it is questionable as to whether the RBA would want to jeopardise the elections with a rate cut so soon as next week ahead of the Federal Elections later in May as it could change the electorate’s judgement of the incumbent’s party’s economic management as analysts at Rabobank pointed out.

"In anticipation of lower RBA rates going forward we expect AUD/USD to continue drifting lower towards 0.68 on a 9 to 12 mth view,"

the analysts at Rabobank explained. 

AUD/USD levels

"Below 0.6950 there is scope for the 0.6857/78.6% retracement. Rallies will now find initial resistance offered by the 55 day ma at 0.7105 and the market will stay directly offered below here. Price action in January was exhaustive – the market charted a hammer (reversal). This suggests the down move ended at 0.6738," analysts at Commerzbank argued.