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AUD plunges through supports after FOMC rate statement

Thursday 17 June, 2021

Daily Currency Update

AUD - Australian DollarThe Australian dollar fell sharply through the overnight session, breaking key supports at 0.7680 to touch a two-and-a-half-month low at 0.7608. The AUD tracked sideways in the lead up to the Federal Reserve’s quarterly forecast and rate statement before a swift shift toward haven assets prompted a sell-off across commodity and emerging market currencies. The FOMC dot plot suggested policymakers now believe at least two rate hikes will be appropriate in 2023, bringing forward estimates having signalled there would be no rate adjustment until 2024 in March. The market had priced in a single rate hike in Q2 of 2023, so the projection of 2 hikes surprised investors and prompted a rapid correction of bond yields and asset expectations. Having broken supports, the AUD has shifted out of the narrow handle between 0.7680 and 0.7820 it has held since April and is now firmly entrenched within a near term bear trend. Our attentions remain with the risk narrative and implications of a shift in Fed expectations on market prices, while domestic labour market and unemployment data could provide a catalyst for a deeper correction should they miss the mark. A break below 0.7580/0.76 may prompt a deeper push toward 0.75.

Key Movers

The US dollar index enjoyed its biggest single-day rally in 9 months following the sharp increase in US 10-year treasury yields and market reaction to the FOMC policy announcement. While the Fed opted to maintain its current policy settings, its quarterly forecast showed Fed officials brought forward their expectations for a rate adjustment, surprising markets and prompting a risk-off move. Bond yields spikes with the 10-year treasury rate climbing off 1.5% to 1.57% while break-even inflation rates climbed 5 basis points and over 2.3%. Both the euro and pound gave up ground with the euro slipping toward a six-week low and the pound falling below 1.40. The Japanese yen out-performed in the risk-off environment as did the Swiss franc, but neither currency was able to keep pace with the USD as the world’s base currency pushed its haven counterparts to lows not seen since April. Our attentions remain with the current narrative and ongoing correction in market pricing and monetary policy expectations.

Expected Ranges

  • AUD/USD: 0.7580 - 0.7730 ▼
  • AUD/EUR: 0.6290 - 0.6360 ▲
  • GBP/AUD: 1.8290 - 1.8520 ▲
  • AUD/NZD: 1.0760 - 1.0820 ▲
  • AUD/CAD: 0.9310 - 0.9420 ▼