AUD maintain narrow trading range in face of Hawkish Federal Reserve
Daily Currency Update
The Australian dollar opened this morning in much the same position as it started Wednesday, having failed to hold onto a break above US$0.65. The AUD found support leading into the Federal Reserve Open Market Committee meeting as treasury yields moved lower and investors positioned for an end to US Federal Reserve rate hikes. Instead, the US Federal Reserve offered a Hawkish hold leaving rates unchanged and signaling one final hike before the end of the year. Yields spiked following the meeting and comments from US Federal Reserve Chair, Jerome Powell, lifting the US dollar upward and driving the AUD back below US$0.65 and toward US$0.6450.With nothing of note on the domestic ticket, our attentions turn to NZ GDP data ahead of the Bank of England policy announcement and second-tier US data. The AUD is now firmly entrenched within a narrow trading band, and we expect it will continue to track between US$0.6380 and US$0.6520 through the rest of this week unless a catalyst that shifts the risk narrative emerges.
Key Movers
Price action across major currencies was dominated by the US Federal Reserve (Fed) policy meeting and the UK CPI inflation update. As expected, the FOMC left rates on hold, yet trailing commentary from Fed Chair, Jerome Powell and the accompanying statement suggested the Fed is committed to its higher for longer mantra. Median estimates suggest that one final hike will be appropriate before year-end. However, the pace of retracement through 2024 will be slower than first anticipated, with peak rates at the end of 2024 expected to remain above 5%, up from 4.65 previously. Against a backdrop of higher US rates, the US dollar index jumped back above 105, pushing on to match last week’s post mark high.In contrast, the Great British Pound was the day’s big loser, slumping on the back of a softer-than-expected CPI print. Inflation in the UK fell from 6.8% to 6.7%, moving against market estimates of a small uptick back to 7%. Core inflation rose at a slower pace than expected, up 6.2% against a 6.8% anticipated rise. The pound fell to its lowest level since May, following the data as markets repositioned expectations for a Bank of England rate hike this evening. The market is now divided as to whether the MPC will lift interest rates amid rising speculation policymakers may opt to hold rates. With just 22 basis points of tightening priced into the curve, the market is positioning for an end to this current tightening cycle and tonight's decision and accompanying statement will prove key in determining near-term GBP value.
Expected Ranges
- AUD/USD: 0.6380 - 0.6520 ▲
- AUD/EUR: 0.5980 - 0.6090 ▲
- GBP/AUD: 1.8980 - 1.9380 ▼
- AUD/NZD: 1.0800 - 1.0900 ▲
- AUD/CAD: 0.8630 - 0.8730 ▲