The Fed held on 29 April as widely expected with Jerome Powell to remain on the board until 2028.
This article was submitted by Michael Stark, an analyst at Exness.
The US dollar posted a modest decline in most of its pairs after the meeting of the Federal Reserve (the Fed) on 29 April. There was limited disagreement with signalling a potential cut later in the year. This article summarises the Fed’s meeting and other factors affecting the dollar recently then looks briefly at the charts of USDCAD and AUDUSD.
The FOMC voted to hold at the current funds rate of 3.5-3.75% once again, citing like last month inflationary pressure from the conflict in the Gulf and a lukewarm job market. There was only one dissenter favouring a cut; however, three members disagreed with the wording that rates will probably come down this year. Overall, the decision and statement themselves weren’t surprising.
While not a major intrigue, Jerome Powell’s change of plans to remain a governor after his term expires on 15 May was not expected. Dr Powell had previously announced that he would also leave the board of governors when stepping down as chair. Since the Department of Justice announced it will halt its investigation into the renovation of the Fed which went over budget, the chair is ‘off the hook’ but commented in the press conference that he wants to be sure that the matter is entirely settled before departing.
Meanwhile just a few hours before the Fed’s meeting the Senate Banking Committee approved Kevin Warsh’s nomination as the next chair, opening the path for the Senate as a whole to confirm him as head of the Fed in the next few weeks. Dr Warsh’s appointment won’t clearly lead to a faster path down by the funds rate both because he might not obey the president’s orders and because his vote won’t make much difference if the FOMC as a whole is concerned about upward pressure on inflation, which seems to be the case.
In general, Donald Trump’s insistence that the military blockade of Iran will continue until a nuclear deal is reached means that some degree of instability in the Gulf is likely to continue for some time even though open conflict hasn’t resurged. This has led to some demand for the dollar as a geopolitical haven. However, traditional havens such as the yen have declined overall during the conflict in many cases because of likely shortages of oil hitting economies.
Dollar-loonie holding around prewar areas
USDCAD remained broadly stable after both the BoC and the Fed held rates on 29 April with both signalling either directly or by omission that hikes in 2026 are unlikely. The BoC explicitly stated that it doesn’t expect recent spikes in crude oil to affect underlying projections for inflation. The US dollar was under pressure here earlier in April as oil continued to rise overall and the Gulf conflict deescalated somewhat. Overall, though, it seems that the American economy is in better shape than Canada’s and the current differential in rates is likely to persist at least through the summer and probably into 2027.
The 61.8% weekly Fibonacci retracement around $1.396 seems like a strong resistance which is unlikely to be broken soon without a large shift in sentiment. For the price to retest this there would probably need to be an upsurge in volume and possibly a consolidation in the value area between the 50 and 100 SMAs. The slow stochastic has recently emerged from oversold but there’s no clear upward momentum.
$1.35 is a potential area of support as a significant low from January and February. The most favourable scenario based on TA ahead of the upcoming NFP on 8 May is sideways movement between around $1.36 and $1.373. 6 May’s Ivey PMI is unlikely to drive a strong reaction on the chart unless it’s very surprising.
AUDUSD seems vulnerable around three-year highs
AUDUSD scored a fresh closing high since February 2023 on 27 April around 71.9c as traders widely expect the RBA to hike again on 5 May, which would take its cash rate to 4.35%. Australia’s very high annual headline inflation at 4.6% from the latest release suggests that the RBA will probably continue to hike at least once and possibly several more times for the rest of 2026 while the Fed has around an 85% probability from CME FedWatch of holding until 2027. However, as a risk on and trade-sensitive currency, the Australian dollar might face headwinds fundamentally from events in the Gulf.
The 161.8% weekly Fibonacci extension above the top of the chart around 74.6c is an obvious long-term target for buyers. However, with a decline in volume in April and the price remaining close to overbought based on the slow stochastic and Bollinger Bands, some degree of retracement lower first seems likely.
The price tested the 20 SMA on 29 and 30 April. If it breaks below there, the next probable dynamic support could be the value area between the 50 and 100 SMAs. The 100% weekly Fibonacci retracement around 69c, September 2024’s high, would probably cap losses. In addition to the RBA’s meeting on 5 May and the NFP
three days later, traders are also going to monitor Australian balance of trade on Thursday 7 May for a possible decline.
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The opinions in this article are personal to the writer; they do not represent those of Exness. This is not a recommendation to trade.