The December meeting of the Federal Reserve is expected to see a significant change in the Committee’s approach to policy, according to economists at Westpac. Subsequently, they expect AUD/USD to settle at 0.70 by June 2022.

FOMC to accelerate rate hikes

“At the December 14-15 meeting, we now expect the taper to be accelerated to conclude in March 2022, making room for three 25bp rate hikes at the June, September and December 2022 meetings.”

“From end-2022 to June 2024, we then see a further three rate hikes (one every six months) to a federal funds rate of 1.625%.”

“Our expectation that the economy can settle at trend growth with full employment is also behind our view that the US 10-year yield will hold above the federal funds rate over the entire forecast period, only retreating from a peak of 2.30% at September 2022 to 2.20% end-2023 and 2.00% end-2024 as inflation risks abate.”

“While divergent rate expectations and risks related to delta are set to weaken the euro to June 2022, once the first hike is delivered by the FOMC and prospects for Europe and the global economy, and Asia in particular, strengthen, the DXY index is forecast to fall back from 98.6 to 97.4 end-2022, and 95.9 end-2023.”

“We now see the low point in the AUD/USD at 0.70 by June lifting to 0.73 by end-2022 and sustaining that upswing in 2023 to 0.78.”


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