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AUD steady as Fed begins tapering

Thursday 4 November, 2021

Daily Currency Update

AUD - Australian Dollar

The Australian dollar opens marginally higher this morning having pushed back toward 0.7450, following the FOMC policy update and rate statement. As expected, the Fed announced it will begin tapering its asset purchase program later this month with a view to end QE supports in June next year. The Fed were careful to note that the pace of adjustment may be altered to better suit changing economic conditions and outlook. Hawks hopes for a faster pace of adjustment and an H1 rate hike were dashed when the Fed reiterated its assessment of inflationary pressures. The Fed still sees inflation as transitory yet conceded inflation may be prolonged and take longer to move back to normal levels. The AUD bounced off lows at 0.7415 to test a break back above 0.7450, as our attentions now turn to Fed President Jerome Powell. Powell will likely be pressed on the timing of a first-rate hike and whether or not the FOMC is prepared to push back on market expectations for a H2 2022 price adjustment. With few surprises in the policy update, Powell’s comments could have been the catalyst to drive direction and either test supports at 0.7380 or open the door for a break back above 0.75 US cents. Instead the Fed Chair confirmed expectations inflation will ease through Q2 and Q3 next year and policy will be adapted appropriately with the Fed committed to a patient approach.

Key Movers

The US dollar shifted lower overnight as the Fed’s program of asset purchase reductions was largely in line with market expectations and policy makers refused to be drawn into bringing forward expectations for an interest rate hike. The FOMC remains committed to maintaining its transitory inflation outlook, although it did concede higher inflation will be prolonged and it doesn’t expect price pressures to normalise until the middle of next year. Fed President Jerome Powell suggested the Fed is prepared to be patient in assessing economic conditions and price pressures. With the USD under pressure the euro has pushed back above 1.16, while sterling has extended toward 1.37. Our attentions turn now to the Bank of England policy update. The market appears split on whether the MPC will opt to raise interest rates by 15 basis points to 0.25% in a bid to combat stubborn and persistent inflation pressures. The out of cycle hike could add pressure to the GBP as markets see it as a potential drag on the broader economic recovery.

Expected Ranges

  • AUD/USD: 0.7380 - 0.7520 ▲
  • AUD/EUR: 0.6380 - 0.6450 ▼
  • GBP/AUD: 1.8180 - 1.8580 ▲
  • AUD/NZD: 1.0350 - 1.0450 ▼
  • AUD/CAD: 0.9190 - 0.9250 ▲