AUD powers back through US$0.66 after dovish Fed policy update
Daily Currency Update
The Australian dollar opened higher this morning, having lurched back above US$0.66 following the Federal Reserve’s (Fed) latest policy update. The AUD maintained a narrow range through the local session and led into the Fed’s December Federal Open Market Committee policy meeting as investors sidelined major bets. As expected, the Fed left rates on hold and many anticipated the Fed would continue to proffer a united message, reiterating that it's simply too soon to talk about easing financial conditions and that one more rate hike may still be required. Instead, Federal Reserve Chair, Powell offered a dovish assessment of future rate conditions, noting it is important that the Fed “not make that mistake” of holding higher rates for too long, admitting the Fed discussed the path to rate cuts in today’s policy agenda. These comments sent yields tumbling with 2-year rates hitting their lowest level in 5 months as markets price out 144 basis points of cuts through 2024. The AUD surged off US$0.6570, powering through US$0.66 and US$0.6650 marking intraday highs at US$0.6670 at time of writing.With a key risk event behind us now, our attention turns to the domestic labour market and unemployment data. A robust read affords the RBA impetus to maintain a tightening bias, and after today’s Fed policy update, the prospect of one more domestic rate hike could help underpin AUD gains and create a yield advantage for the AUD through 2024.
Key Movers
It’s all about the Federal Reserve (Fed) this morning. We expected policymakers would leave rates on hold but Federal Reserve Chair Jerome Powell’s dovish shift caught us by surprise and has prompted another significant market repositioning, across rates, Treasury yields and currency markets. After last week's robust non-farm payroll print and a CPI inflation read Tuesday that afforded the Fed little impetus to change their current mantra many expected Powell would reiterate and affirm it was too early to consider lowering rates while maintaining a bias for one more rate hike. Instead, Powell acknowledged the path to policy cuts had been discussed, as well as the importance of the Fed not leaving rates high for too long. The comments made in the post-meeting Q&A sent 2-year yields tumbling, while rates fell and the USD slipped against all majors. The euro jumped from lows below 1.0780 to test a break above 1.09 while the GBP powered through 1.26 and the yen forced the dollar back below 143.Our attentions turn now to more central bank market commentary with the Bank of England, European Central Bank and Swiss National Bank all meeting this evening. While we expect rates will be left on hold, guidance will prove key in shaping direction into year-end.
Expected Ranges
- AUD/USD: 0.6550 - 0.67200 ▲
- AUD/EUR: 0.6050 - 0.6150 ▲
- GBP/AUD: 1.8750 - 1.9250 ▼
- AUD/NZD: 1.0680 - 1.0820 ▲
- AUD/CAD: 0.8920 - 0.9020 ▲