Price action contained as Fed officials attempt to douse market expectations

Daily Currency Update

The Australian dollar tracked within a relatively narrow range through trade on Monday, bouncing between US$0.6690 and US$0.6735. With little of note on the domestic docket, the AUD edged toward levels not seen since mid-July marking session highs at US$0.6734.

Market expectations the Fed will begin paring rate hikes as early as March 2024 continue to spur AUD gains and direction, with comments from key officials sort to douse market exuberance. Policymakers questioned market pricing and suggested that price action and expectations have disappeared from reality. US yields edged higher in response and the AUD tracked back below US$0.67 through the overnight session.

With most key risk events now behind us, our attention turns to the RBA policy meeting minutes ahead of the Bank of Japan (BoJ) policy update. Given the statement following the RBA December meeting was long and detailed in its justification for the November rate hike, we expect little to no new insight into RBA policy moving into 2024.

The market is still pricing in the chance of one final hike, yet we don’t expect the minutes will offer any insight or inference as to when the RBA may pull the trigger and as such price action should be well contained. Thus, BoJ remains our key focus. A surprise rate adjustment could spur significant market volatility.