AUD slides after Fed all but rules out March rate cut
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Daily Currency Update
The AUD opened lower this morning, trading near US$0.6550 after the Federal Reserve left rates unchanged and gave no indication it will cut rates before May. After yesterday’s softer-than-expected Q4 inflation update, the AUD struggled to extend a break above US$0.66 and bounced between US$0.6590 and US$0.6620 leading into the Fed’s policy update and rate statement. The Federal Open Market Committee (FOMC) acknowledged that it will likely be appropriate to dial back the funds rate target at some point this year but as long as inflation remains above the 2% target, policymakers remain committed to maintaining the tighter conditions. This all but rules out a March rate cut. With pricing for a March rate cut falling from 60% to less than 40%, the AUD marked fresh lows At US$0.6559. With a key risk event behind us, our attentions turn now to Eurozone inflation, the Bank of England policy meeting and a string of US data sets. Having held above US$0.6550 we are keenly attuned to any break below this level as a possible signal of another downward extension.Key Movers
Price action through the Federal Reserve policy meeting has been volatile as markets adjust expectations for Fed rate cuts. With pricing for a March rate adjustment lifting to near 60% probability leading into the policy update and rate statement following a string of softer labour market cues, the USD DXY index fell before pushing higher as markets were forced to unwind bets and the probability of a rate adjustment before May fell below 40%. With markets firming on bets for a European Central Bank (ECB) rate cut in April, in response to further signs inflation pressures are cooling, the euro slipped off intraday highs above 1.0880 finding support at 1.0801. With December inflation data due this evening, we can expect further EURUSD volatility and a potential divergence in implied monetary policy expectations. If the ECB does indeed move to cut rates before the Federal Reserve, we can expect the euro will face near-term downside pressure. Our attentions turn now to Eurozone inflation, the Bank of England policy meeting and a string of US data sets for direction through Thursday.Expected Ranges
- AUD/USD: 0.6500 - 0.6620 ▼
- AUD/EUR: 0.6050 - 0.6120 ▼
- GBP/AUD: 1.9200 - 1.9400 ▲
- AUD/NZD: 1.0700 - 1.0800 ▼
- AUD/CAD: 0.8780 - 0.8880 ▼