Fed cuts rates but promise of further easing doused

AUD - Australian Dollar

The Australian Dollar edged lower overnight, slipping below 0.6850 in response to the Federal Open Market Committee’s monetary policy adjustment and subsequent rate statement. The Fed elected to issue a 25-basis point cut to interest rates, a move widely anticipated and priced in by most analysts. In the wake of the cut markets focus shifted to Fed President Powell’s statement as a new marker for direction. Powell stressed the US outlook remained solid indicating moderate interest rate adjustments would be all that was needed to keep the economy on track. These comments left markets wanting and were considered hawkish when compared with expectations, allowing the USD to rally across the board and sending the AUD toward intraday lows at 0.6812.

Markets had expected the Fed would deliver another cut before years end, however the Dot plot of projections suggest the committee is divided with median outlooks consistent with a policy of neutrality through the next 3 months, that is no additional rate cuts before 2020. This shift forces investors to reassess the outlook for USD adding a floor below the world base currency, making it difficult for the AUD to push back beyond 0.69 in the short term.

With the Fed policy decision behind us our attentions turn to domestic employment data. Labour market performance remains a key indicator governing RBA policy direction and a poor read could amplify calls for another RBA rate cut before the end of the year. An increase in the unemployment rate an miss on job numbers could see the AUD slip back below 0.68 especially if risk appetite falters in the face of rising Geo-political tensions in the wake of the weekend’s strike on Saudi Oil Fields. Watch supports at 0.68 and 0.6780 for short direction and bias.

Key Movers

The USD advanced across the board on Wednesday buoyed by the commentary that followed the Federal Reserve’s monetary policy decision. Investors had anticipated the Fed would cut rates by 25 basis points and the decision to loosen financial conditions had little impact on USD value, instead it was Fed President Powell’s commentary in the wake of the policy announcement that forced investors hands. Powell stressed the outlook remained strong and the moderate policy changes were adequate in sustaining growth. When compared with the Fed’s dot plot of appropriate monetary policy projections and the likelihood of additional cuts into the end of the year have diminished. The dollar index is up three tenths of one percent at time of writing and looks set to extend gains beyond 98.50

Expected Ranges

AUD/USD: 0.6730 - 0.6890 ▼

AUD/EUR: 0.6130 - 0.6230 ▼

GBP/AUD: 1.8180 - 1.8420 ▲

AUD/NZD: 1.0720 - 1.0820 ▲

AUD/CAD: 0.9030 - 0.9130 ▼