AUD/USD plunges as Fed promises to maintain aggressive path of rate hikes

Daily currency update

There is plenty to digest as we return from the public holiday in observance of the Queen’s passing with the AUD testing a break below $0.66 US cents. The AUD plunged through key supports in the wake of the FED and FOMC policy update Thursday morning, giving up $US0.6680 to mark fresh intraday and 24-month lows at $US0.6570. As expected, policymakers lifted rates by 75 basis points while significantly revising interest rate forecasts. The Fed’s dot plot implies policymakers will add another 125 points to the Fed Funds cash rate before the year is up, lifting expectations for the peak cash rate to 4.6%. With inflation pressures largely unchecked the Fed seems hell-bent on extending the current tightening cycle deeper into restrictive territory. The maintenance of this aggressive monetary policy program will likely continue to weigh on the AUD as risk appetite sours and the USD enjoys sustained demand both on haven and yield plays. Having slipped below $US0.66 the AUD has clawed back some losses as the furor that followed the Fed policy announcement subsides. Our attentions turn now to US manufacturing and services data while the UK mini budget will afford a key insight into expected tax cuts and widespread deregulation designed to stimulate the embattled British economy.

Key movers

There was ample price action across major currencies through trade on Thursday as the furor that followed the Fed’s overtly hawkish policy update subsided. Global rates continued to climb as markets look to adjust interest rate projections following a 50-basis point rate hike from the Bank of England and a stubbornly ultra-easy monetary policy update from the Bank of Japan. After an uptick in inflation pressures earlier this week we highlighted the possibility the BoJ may move to unwind its policy of yield curve control if only to prevent further deterioration in the value of the JPY. The bank’s decision to hold firm and offer little hint of changing course prompted a sharp correction in USD/JPY with the dollar surging back through JP¥145 and marking new highs just shy of JP¥146. The rapid JPY sell-off prompted government officials to intervene in a bid to stabilise the currency and limit speculative buying. For the first time in 34 years, officials stepped in to prop up the value of the yen forcing the USD off JP¥145.89 and back to levels as low as JP¥140.36 before price action stabilised and the pair settled to trade at JP¥142.5. While the move surprised markets, without a shift in BoJ policy or a significant weakening in the USD the impact will likely be short-lived. The USD continues to trade near its 20-year high with the Euro comfortably back below parity and the GBP unable to sustain a recovery back above US$1.13. Our attentions turn now to US manufacturing and services data while the UK mini budget will afford a key insight into expected tax cuts and widespread deregulation designed to stimulate the embattled British economy.

Expected ranges

• AUD/USD: 0.6570 – 0.6730 ▼
• AUD/EUR: 0.6690 – 0.6730 ▲
• GBP/AUD: 1.6880 – 1.7120 ▼
• AUD/NZD: 1.1280 – 1.1420 ▲
• AUD/CAD: 0.8880 – 0.9020 ▲