The Australian dollar opens this morning mostly unchanged when compared with the same moment yesterday yet enjoyed wildly varied fortunes through trade on Wednesday. Having maintained a tight 30-point trading band for much of the domestic session, the Aussie crept higher and moved back through 0.7600 shortly after London’s open, gathering momentum into the Fed’s FOMC statement and touching intraday highs at 0.7610. The AUD then tumbled losing almost a cent as the Fed announced a 25 basis point increase in benchmark interest rates forcing the AUD to lows at 0.7532. The knee-jerk reaction was then gradually unwound as investors responded to the commentary delivered in the accompanying rate statement.
While flat over 24 hours we still maintain medium and long-term downside risks for the AUD are in play. Having signaled the possibility of 2 more rate amendments before years end and hinted at three rate hikes in 2019 the US Dollars yield advantage over major currency counterparts is only expected to grow. The RBA is still some way of raising domestic interest rates, and while broader economic signs are positive the lag in wage growth, labor market slack, and inflation expectations are expected to continue through the short term making it increasingly difficult for the board to justify a rate hike. With short-term ranges expected to fluctuate between 0.74 and 0.77, we will be looking to a possible moderation into years end back toward the lower end of this handle.