Home Daily Commentaries AUD rallies back above US$0.71 following Fed policy update

AUD rallies back above US$0.71 following Fed policy update

Daily Currency Update

The Australian dollar extended back above US$0.71 overnight following the Federal Reserves decision to temper the pace of rate hikes and proffer a 25-point rate adjustment. Having maintained a narrow trading range through much for the day, bouncing between US$0.7040 and US$.7070 as investors sideline major bets ahead of the much-anticipated policy update the AUD lurched higher marking fresh daily highs just north of US$0.7130. While anticipated the tempering in the scale of US rate hikes was contrasted with a largely hawkish rate statement from Fed chair Jerome Powell. Powell reiterated the FOMC’s commitment to ensuring a sustained downward path of inflation, pointing to several key indicators that suggest the path to lower prices may be longer than first anticipated. Powell suggested the Fed will need to extend its program of policy tightening dashing hopes policy makers may offer some respite from consecutive rate adjustments. While distinctly hawkish Powell’s comments did little to spook the market with investors instead focusing on diminishing hopes the Fed will be able to prevent a steep economic downturn. Softening US data sets suggests the US economy is losing steam and markets appear content now in riding out the promise of future rate hikes, instead looking to a reversal in Fed policy as it tries to bolster activity.

The AUD continues to meet resistance on moves approaching US$0.7140 and we will need to see a consolidated break above the August high if we are to enjoy an extended push back toward US$0.72/0.73

Key Movers

There is ample to digest this morning as markets respond to the Federal Reserve’s latest rate update and policy announcement. As anticipated policy makers elected to lift rates by 25 basis points a correction in size, down from the 50-point adjustment issued last time round. The decision appears a clear signal the Fed is convinced inflation has peaked and is now turning its attention to cushioning the economic downturn. In this light markets largely disregarded Fed Chair Jerome Powell’s hawkish post update statement. Powell affirmed the FOMC’s commitment to lower inflation promising additional rate hikes. While this sent some shockwaves through equity markets it appears investors concerns now lie in the Fed’s ability to softening any move toward recession. With markets looking beyond the 2023 monetary policy path the USD gave up ground across most major counterparts. The Euro has extended toward 1.10 while the GBP looks to consolidate a break above 1.23 and the Yen has forced the dollar back below 129.

Our attentions turn now to the ECB and Bank of England policy statements and US non-farm payroll data for direction into the weekly close.

Expected Ranges

  • AUD/USD: 0.6980 - 0.7180 ▲
  • AUD/EUR: 0.6370 - 0.6550 ▼
  • GBP/AUD: 1.7220 - 1.7520 ▼
  • AUD/NZD: 1.0920 - 1.1020 ▲
  • AUD/CAD: 0.9380 - 0.9520 ▲