The Australian dollar is under pressure ahead of the US Fed

Jeff J Mitchell/Getty Images
  • The Australian dollar fell across the board on Tuesday, driven lower by a late rally in the greenback.
  • The US dollar was supported by reports that US Fed Chair Jerome Powell is considering holding a press conference after every FOMC meeting, making every meeting “live” for a potential change in interest rates.
  • RBA Governor Philip Lowe will speak today. The US Fed will also announce its June interest rate decision.

The Australian dollar fell across the board on Tuesday, driven lower by a late rally in the greenback.

Here’s the scoreboard as at 7am in Sydney.

AUD/USD 0.7573 , -0.0036 , -0.47%
AUD/JPY 83.58 , -0.13 , -0.16%
AUD/CNH 4.8506 , -0.0176 , -0.36%
AUD/EUR 0.6447 , -0.0009 , -0.14%
AUD/GBP 0.5662 , -0.0026 , -0.46%
AUD/NZD 1.0805 , -0.002 , -0.18%
AUD/CAD 0.9856 , -0.0017 , -0.17%

Rather than geopolitics and economic data, the broader movements were driven by an article from the Wall Street Journal suggesting that US Federal Reserve Chair Jerome Powell is looking to have a press conference after all Fed meetings, not after the second meeting as is currently the case.

In the current tightening cycle, the Fed has only moved interest rates at a meeting where a press conference has been held. By making this a regular event after every meeting, it essentially means that every Fed meeting if “live” for rate increases, something that undoubtedly helped to boost the greenback on Tuesday.

Forget the prospect of world peace, that was what drove the price action in the latter part of the session.

Welcome to 2018!

The rally in the US dollar was also helped by tweaks to market positioning ahead of the Fed’s FOMC interest rate decision that will arrive early tomorrow morning in Asia.

At the margin, US consumer price inflation (CPI) data released during the session also helped the greenback’s cause.

Headline CPI rose by 2.8% in the year in May, up from 2.5% in the 12 months to April. That was also slightly ahead of expectations for a smaller acceleration to 2.7%. Core CPI also rose to an annual pace of 2.2%, up from 2.1% in April.

Adding to evidence that US inflationary pressures are building, a separate survey from the US NFIB revealed that the proportion of small businesses increasing their prices hit the highest level since 2008 in May.

On what was an otherwise quiet session, that was enough to prompt profit-taking in the AUD/USD, seeing it finish trade at .7571.

Investing.comAUD/USD Hourly Chart

Turning to the day ahead, there’s a few points of interest for traders ahead of the Fed’s interest rate decision at 4am AEST.

In Australia, RBA Governor Philip Lowe will deliver a speech in Melbourne on “Productivity, Wages and Prosperity” from 1.20pm AEST.

Given the RBA has already made it clear that policy will remain on hold for the foreseeable future, it’s unlikely to deliver too many surprises to markets.

The latest Westpac-MI Australian consumer sentiment report for June will also be released at 10.30am AEST.

Later in the session, data highlights include Spanish and UK CPI, unemployment and industrial production figures from the Eurozone along with producer price inflation (PPI) from the United States.

However, the reality is they will all play second-fiddle to the Fed’s interest rate decision, especially its updated economic and interest rate forecasts.

With a 25 basis point increase to the Fed funds rate to 1.75% to 2% seen as a given, the key question will be whether Fed members plan to lift rates once or twice again this year.

“[The] market’s focus is likely to be on whether the median dots shift up and how the Statement and Jermome Powell choose to characterise the forward-guidance language,” said Rodriogo Catril, Senior FX Strategist at the National Australia Bank.

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