- The Australian dollar fell against most of the major crosses again on Tuesday, weighed down by another plunge in crude oil prices.
- The US Federal Reserve will announce its December interest rate decision today. Markets are 70% priced for a 25 basis point hike.
- China’s three-day Central Economic Working Conference (CEWC) — where goals for the economy and economic reform next year will be discussed — also kicks off today.
The Australian dollar remains under pressure, losing ground against most of the major crosses on Tuesday despite continued US dollar weakness.
Here’s the scoreboard at 8am in Sydney on Wednesday.
AUD/USD 0.7177 , 0.0005 , 0.07%
AUD/JPY 80.76 , -0.24 , -0.30%
AUD/CNH 4.9439 , -0.01 , -0.20%
AUD/EUR 0.6316 , -0.0011 , -0.17%
AUD/GBP 0.5678 , -0.0007 , -0.12%
AUD/NZD 1.0479 , -0.0075 , -0.71%
AUD/CAD 0.9672 , 0.0054 , 0.56%
After opening at .7172, the AUD/USD followed a familiar pattern during the session, lifting in Asian trade before giving back ground towards the close.
There was little reaction to a speech from Chinese President Xi Jinping that failed to outline any specific measures to help support the Chinese economy. Instead, short-covering ahead of today’s Fed interest rate decision was the likely catalyst behind the push higher in Asia.
However, the AUD/USD gave back ground later in the session, partially reflecting a huge decline in crude oil prices which plummeted as much as 8% before rebounding slightly towards the close.
As a major LNG exporter, that understandably weighed on the Aussie, albeit not to the same degree as other crude-linked currency plays like the Canadian dollar and Norwegian krone.
The Aussie’s losses were contained against the greenback, partially in response to growing chatter that the Fed may scale back the expected pace of policy tightening in the year ahead.
“The WSJ published an editorial headed ‘Time for a Fed pause’, arguing the case for the Fed not to hike rates so soon again,” said David de Garis, Economist at the National Australia Bank.
As was the case on Monday, US President Donald Trump jumped on the story, placing additional political pressure on the Fed to not increase interest rates.
I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake. Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!
— Donald J. Trump (@realDonaldTrump) December 18, 2018
Despite the release of slightly stronger-than-expected US economic data during the session, that ensured the greenback remained under pressure, seeing the AUD/USD remain around Monday’s closing level.
Turning to the day ahead, there are two “known” events that markets will be focusing on — the Fed’s interest rate decision and China’s three-day Central Economic Working Conference (CEWC) meeting.
On the Fed, markets are 70% priced for a 25 basis point increase in the funds rate — not quite a lock but close in terms of expectations.
Presuming the Fed follows through on market pricing, ignoring the free advice offered by Trump and the WSJ, what will matter most for markets will be the FOMC’s updated economic projections, especially the median member forecast for the path of the funds rate next year and in 2020.
De Garis at the NAB expects the median forecast will be lowered from three 25 basis point rate hikes to two, mirroring the scaling back of market expectations seen in recent weeks.
He expects the forward guidance on rate in the policy statement to be dialed back from “expected further gradual rate rises” to something more aligned to the future path of rates being dependent on incoming economic data. De Garis says that Fed Chair Jerome Powell will “play a pretty straight bat and reinforce increasing importance of decisions being data dependent”.
The Fed decision will arrive at 6am AEDT.
As for China’s CEWC, de Garis says markets may have to wait for a few more days for specific details to be be announced.
“The main elements and goals for the economy and economic reform will be thrashed out in the remainder of this week,” he says.
“We might not hear about specifics for some time if recent years are any guide.”
Outside of those events, other highlights today the New Zealand Q3 current account, Japanese trade, UK and Canadian CPI along with existing home sales from the United States.
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