- The Australian dollar finished mixed on Wednesday, losing ground against the greenback but gaining against most of the major crosses.
- The Fed’s September FOMC minutes were regarded as hawkish, helping to underpin gains in the US dollar.
- Australia’s September jobs report will be released today. Also keep an eye out for headlines relating to Brexit negotiations and Italy’s 2019 budget.
The Australian dollar finished mixed on Wednesday, falling against the greenback, Japanese yen and Chinese yuan but gaining against the euro and British pound as well as other commodity currencies.
Here’s the scoreboard at 8am in Sydney.
AUD/USD 0.7107 , -0.0033 , -0.46%
AUD/JPY 80.07 , -0.08 , -0.10%
AUD/CNH 4.9248 , -0.0099 , -0.20%
AUD/EUR 0.6179 , 0.0011 , 0.18%
AUD/GBP 0.5418 , 0.0004 , 0.07%
AUD/NZD 1.0849 , 0.0009 , 0.08%
AUD/CAD 0.9257 , 0.0021 , 0.23%
The main theme of the session was broad based US dollar strength, helped by a modest pullback in investor risk appetite and preemptive buying ahead of the release of the minutes of the US Federal Reserve’s September FOMC meeting that were widely anticipated expected to be hawkish in nature.
Markets weren’t disappointed, helping the greenback to hold its gains achieved earlier in the session.
“An obvious takeaway from the FOMC minutes is the groundswell forming in favour of running policy on the tight side of neutral,” strategists at Westpac said.
The minutes noted that: “a few participants expected that policy would need to become modestly restrictive for a time and a number judged that it would be necessary to temporarily raise the federal funds rate above their assessments of its longer-run level”.
Importantly, all participants supported a gradual approach to tightening.
While there is some degree of uncertainty as to what the “new” neutral level for the Fed funds rate is, many believe it currently sits around 3%, near 100 basis points higher than its current level.
The neutral level is regarded as the point where the US economy grows at its potential rate, keeping unemployment and inflationary pressures steady.
With some FOMC members indicating that policy may need to move into restrictive territory, that suggests at least another five 25 basis point rate increases may still be required, on top of the eight already delivered in the current tightening cycle.
That assessment also fits with the median year-end projections for the Fed funds rate offered in September.
Along with weakness in stocks in the US and Europe, and some steep declines in some commodity markets, that ensured the AUD/USD came under renewed selling pressure, pulling back from a two-week peak hit on Tuesday to close the session at .7108.
While the Aussie weakened against the greenback, it fared better against most of the major crosses.
The British pound was weighed down by a softer-than-expected inflation report for September along with a continued stalemate over Brexit negotiations with the European Union. The euro also softened on Brexit uncertainty, as well as ongoing concerns about a showdown on Italy’s 2019 budget with the European Commission.
The Aussie dollar also gained against the Canadian dollar, likely reflecting a steep plunge in WTI crude futures following an unexpectedly large build in US crude inventories last week.
Turning to the day ahead, there’s plenty of data and risk events to keep currency traders interested.
Domestically, Australia’s September jobs report will be released at 11.30am AEDT. This 10-second guide has more on what to expect.
Regionally, Japan will release trade data for September at 10.50am AEDT. BoJ Governor Kuroda will also speak at 11.30am AEDT.
Later in the day, highlights include German wholesale price inflation, UK retail sales along with jobless claims and the Philly Fed manufacturing survey from the United States.
With European Union and finance ministers leaders meeting, any Brexit and Italian headlines could well prove to be influential.
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