Home Daily Commentaries AUD edges upward as markets whippy following Fed policy update

AUD edges upward as markets whippy following Fed policy update

Daily Currency Update

The Australian dollar advanced through trade on Thursday, buoyed by a broadly weaker US dollar. Having tracked sideways through the domestic session, the AUD lurched upward overnight in what was a whippy trading session as markets scrambled to respond to softer-than-anticipated US PPI data and a somewhat hawkish Fed policy update. PPI data was weaker-than-anticipated, elevating hopes for sustained downward pressures on headline inflation indicators. With core figures returning to pre-covid levels, the AUD was lifted toward intraday highs at US$0.6830 as the USD slumped to fresh lows ahead of the FOMC policy update. With the AUD poised to consolidate a break above US$0.68, the FOMC surprised analysts by offering a more hawkish forward outlook. While leaving rates on hold, median policymaker projections expected a raise rates at least twice more, compared with the one additional hike priced in by market participants. The mismatch between market and Fed expectations forced the AUD to give up gains, slumping back toward the daily open at US$0.6760. Fed Chair, Jerome Powell, then addressed the Press and the AUD found support in his comments. Powell noted future hikes would be data-dependent and seemed reluctant to label this month’s policy decision as a “skip”, implying there is no set expectation among policymakers that a rate hike will be issued next month. The AUD bounced back toward US$.68 and traded just below that handle on open, this morning.

With the USD on the back foot, attentions turn to local employment data, China activity data, US retail sale and the European Central Bank (ECB) policy meeting.

Key Movers

The US dollar trended lower Thursday in what was a volatile and whippy trading session. Softer-than-expected PPI data coupled with mixed Federal Open Market Committee messaging saw the USD whip about overnight as investors scrambled to adjust positions and rate expectations. PPI data showed a continued easing in pipeline inflation pressures boosting hoped headline inflation will continue to track downward, alleviating the need for extensive Fed rate hikes moving forward. The USD slumped following the print, but lurched upward, pairing back losses after the FOMC policy meeting and dot plot of member expectations showed most policymakers anticipated raising rates at least twice more. This surprised markets with most participants now only pricing in one additional rate hike. With markets working to price in tighter policy, Fed Chair, Jerome Powell, hit the stage. While Powell noted this month’s pause in the tightening cycle was the next step in the continued moderation of rate hikes, he stressed future decisions would be data-dependent and appeared reluctant to label this decision a “skip” in the tightening cycle. Markets picked up on Powell’s reluctance and assumed the fact he wasn’t explicit implies future rate hikes are by no means set in stone. The USD fell following Powell’s comments and is broadly weaker than most major counterparts.

Our attentions turn now to US retail sales, Chinese activity data and the European Central Bank (ECB). We expect the ECB will issue a 25-point increase in the deposit rate with forward guidance, signalling additional rate hikes will be required.

Expected Ranges

  • AUD/USD: 0.6750 - 0.6830 ▲
  • AUD/EUR: 0.6250 - 0.6320 ▲
  • GBP/AUD: 1.8480 - 1.8720 ▲
  • AUD/NZD: 1.0900 - 1.1020 ▼
  • AUD/CAD: 0.8980 - 0.9080 ▲