"The Fed policy statement release may actually halt the USD bulls," said IG's market strategist Evan Lucas in a Monday note.
Indeed, not only the central bank may pressure the greenback, as analysts believe, it is also expected to boost the commodity currencies which suffered a grinding drop in the recent months.
"Expectations are low for any major divergence from current language or action. The FOMC may even be a little more cautious about the current market and economic conditions. This would see a quick unwind in oversold markets: Oil and industrial metals would likely rise and a likely drop in the USD would transpire," Lucas noted.
If Janet Yellen, the Fed Chair, gives some more hints on whether the hike will take place in September, the greenback will be further supported while the commodity-linked currencies will be pushed lower. Those include the ones of Australia, Canada, New Zealand, Brazil and Indonesia, who are hoping that the chair will sound a cautious tone and pause the sell-off in those currencies, says CNBC.
Iron ore is what Australia depends upon. New Zealand's exports include mainly dairy products while energy constitutes the biggest part of exports for Canada, Brazil and Indonesia.
A steep drop in
prices of energy, gold, dairy and metals combined with a stronger
dollar, a weakening Chinese economy and speculation on looser monetary policy -
excluding Brazil where rates remain high - have pressured commodity-dependent currencies to multi-year lows.
Both the Aussie and Kiwi are trading at a six-year trough. Friday saw the Loonie and the Brazilian real fall to 2004 and 2003 lows respectively.
Indonesia's rupiah hit a fresh seventeen-year low on Monday - the seventh time in two months.
Any doubts regarding a September hike?
Many market players seem skeptical in respect of the possibility of a September rate hike.
IG's Lucas noted, for instance, that 85 percent of economists surveyed see Fed hike in September, but the market is only pricing in a 10-basis-point move in September at 45 percent.
Shane Oliver, chief economist at AMP Capital agreed. "The U.S. money
market appears to be attaching a 25 percent chance to a September move,"
he said.
Kathy Lien, managing director of BK Asset Management has no doubts the central bank will lift the rates in September, noting that they anticipate a further dollar rally. She underscored that a decline in retail sales, slowing job growth and stagnant average hourly earnings in June were disturbing for investors. However, all three saw a rise in the third quarter and "as such the Fed is likely to downplay the weakness and focus on the improvements in the housing market and the drop in the unemployment rate."
Societe Generale supported this view saying that they expect a first hike in September and a second possibly in early 2016. That would be enough to undermine the pressure the greenback suffers.
The bank noted the 5 percent appreciation over the next three quarters was quite possible.
