The Australian dollar's getting hosed

  • The Australian dollar has been slammed, tumbling around 1% against most major crosses on Wednesday.
  • The US Fed delivered a “dovish” rate hike in December. However, it wasn’t dovish enough for financial markets.
  • Australia’s November jobs report is released today. The BoJ and BoE also announce monetary policy decisions.

The Australian dollar is getting hosed in late trade on Wednesday, falling heavily across the board.

Here’s the scoreboard at 8am AEDT in Sydney on Thursday.

AUD/USD 0.7102 , -0.0078 , -1.09%
AUD/JPY 79.95 , -0.83 , -1.03%
AUD/CNH 4.9025 , -0.0451 , -0.91%
AUD/EUR 0.6244 , -0.0075 , -1.19%
AUD/GBP 0.5629 , -0.0048 , -0.85%
AUD/NZD 1.0452 , -0.0031 , -0.30%
AUD/CAD 0.9584 , -0.0086 , -0.89%

After opening at .7180, the AUD/USD followed a familiar pattern, lifting in Asian trade before giving back ground — and a lot of ground — in the second half of the session.

Having attempted to break above resistance at .7200 throughout Asian and European trade, buyers eventually gave up trying to force the Aussie though the figure, seeing it slip lower ahead of the US Federal Reserve’s December interest rate decision later in the session.

Already among the worst G10 currencies for the session, the Aussie’s woes were compounded once the Fed decision was released, tumbling heavily towards the close.

The 5-minute AUD/USD chart below tells the story. It was smoked. Full. Stop.

Investing.comAUD/USD 5-Minute Chart

As expected, the Fed increased its funds rate by 25 basis points to a range of 2.25% to 2.50%.

The median FOMC member forecast for the funds rate over the coming years was also lowered with two hikes now being favoured for 2019, down from three in September. One further hike in 2020 is also seen, meaning the median view is there’ll be three further rate hikes in the current cycle.

Like the actual rate decision, that too was widely expected.

The FOMC also trimmed its forecasts for core PCE inflation by one-tenth of percentage point over the next three years, seeing it at 2%, down from 2.1% in prior forecasts offered in September.

Median expectations for GDP growth were lowered to 2.3% in 2019, below the previous forecast for 2.5%. Small upward revisions were also made to the Fed’s unemployment rate forecasts in 2020 and 2021 with 3.6% and 3.8% levels now seen, up a tenth from three months ago.

Combined, the Fed delivered what many had expected — a “dovish” hike. However, given the subsequent market reaction, it suggests the Fed wasn’t dovish enough to appease investor concerns about tighter policy settings at a time when the economy is slowing.

“What was a bit surprising is that the post meting statement says that ‘some further gradual increases in the target range for the federal fund rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term’,” said Ray Attrill, Head of FX Strategy at the National Australia Bank.

“The expectation here was that all reference to ‘gradual’ could be dropped, [putting] a formal end to the Fed being on auto-pilot with respect to its rate rise cycle to date.”

The losses in the Aussie accelerated as Fed Chair Jerome Powell’s press conference began 15 minutes after the policy statement and economic projections were released, seeing it tumble to as low as .7088 before rebounding modestly in towards the close.

That reaction may have been caused by Powell providing no indication the Fed intends to slow or stop the continued unwind of the Fed’s balance sheet.

“The run off in the Fed’s balance sheet has attracted considerable attention lately, but Powell made clear there won’t be any changes, noting it has been ‘smooth’ and that they do not see the policy as having created any problems,” said Richard Franulovich, Head of FX Strategy at Westpac Bank.

Like the greenback, the Aussie was also hosed against all of the major crosses, especially the euro which was supported by news that Italy and the European Commission had resolved their differences towards Italy’s 2019 budget.

Turning to the session ahead, the fallout from the Fed decision — and subsequent market reaction — will likely dictate the early moves in Asia.

On the data front, Australia’s November jobs report will be released at 11.30am AEDT. It’s the last major Australian data release of the year, and an incredibly important one at that given recent concerns about the outlook for the domestic economy in the early parts of 2019.

This 10-second guide has more on what to look out for in the report.

Outside of Australia, New Zealand’s Q3 GDP report will also arrive at 8.45am AEDT. Quarterly growth of 0.6% is expected, leaving the change on a year earlier at 2.8%.

The Bank of Japan will also announce it’s December monetary policy decision midway through the Asian session (there is no set time for the decision, still). Unlike the Fed, it will likely come and go to little fanfare given nothing meaningful is expected to change.

Later in the day, other data highlights include UK retail sales, Eurozone current account along with jobless claims and the Philadelphia Fed manufacturing survey in the United States.

Finally, the Bank of England will also announce its December policy decision. No change is expected, or likely, meaning most interest will be on what the bank may or may not say in relation to Brexit negotiations.

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