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AUD under pressures as all eye on Federal Reserve

Wednesday 15 December, 2021

Daily Currency Update

The Australian dollar tracked lower through trade on Tuesday, testing a break below 0.71 US cents as investors pursue a cautious narrative in the lead up to the FOMC policy update and rate announcement. After last week's softer than expected CPI print, a robust US PPI print reignited inflation jitters, confirming expectations the Fed will announce an accelerated plan to monetary policy normalisation. Having eyed a break back above 0.72 last week, the AUD has unwound recent gains, marking intraday lows at 0.7090 and remains vulnerable to sustained short term weakness with the USD expected to be stronger for longer. This week's Fed announcement will prove key in guiding near and medium-term direction. Policymakers have adopted a more hawkish rhetoric in recent weeks, dropping key phrases and emphasising the importance of controlling sustained price pressures.  The market has high expectations for a definitive and perhaps aggressive policy shift and any sense the FOMC has fallen short in meeting expectations could drive USD weakness, while a more aggressive plan could fuel further dollar gains. We anticipate elevated volatility coming out of the announcement and are keenly attuned to key supports at 0.70 and 0.7180.

Key Movers

Price action across major currencies was modest through trade on Tuesday as the risk off narrative prompted sustained softness across commodity led units, with the CAD the day's big loser. The USD index remains elevated, with most majors maintaining a narrow handle through the day. We expect volatility will remain suppressed in the lead up to the FOMC and Fed policy update as investors square positions, poised to shift focus following the policy announcement. Our focus remains affixed to key central bank updates and with the Fed, BoE, BoJ and ECB all meeting this week any divergence in the path to normalisation could drive volatility into the end of the year and 2022.

Expected Ranges

  • AUD/USD: 0.7000 - 0.7180 ▼
  • AUD/EUR: 0.6250 - 0.6350 ▼
  • GBP/AUD: 1.8490 - 1.8720 ▲
  • AUD/NZD: 1.0480 - 1.0590 ▼
  • AUD/CAD: 0.9070 - 0.9220 ▲