- The Australian dollar went on a wild ride on Wednesday. However, despite all the volatility, it finished the session largely unchanged against the US dollar.
- The US Fed raised interest rates by 25 basis points as expected. It continues to see another rate hike this year and another three in 2019.
- Australian job vacancy data will be released today. The economic and central bank calendar is also jam-packed in the second half of the session.
The Australian dollar went on a wild ride during Wednesday’s trading session, surging above the 73 cent level against the greenback before giving back all of those gains into the close.
Here’s the scoreboard at 7am in Sydney.
AUD/USD 0.7258 , 0.0008 , 0.11%
AUD/JPY 81.82 , -0.08 , -0.10%
AUD/CNH 4.9898 , 0.0104 , 0.21%
AUD/EUR 0.6180 , 0.0022 , 0.36%
AUD/GBP 0.5511 , 0.0012 , 0.22%
AUD/NZD 1.0903 , 0.0002 , 0.02%
AUD/CAD 0.945 , 0.0063 , 0.67%
After range-trading in the first half of the session, the AUD/USD ripped higher following the release of the US Federal Reserve’s September interest rate decision at 4am AEST.
While the Fed increased its funds rate by 25 basis points to a range of 2 to 2.25% — a move that was entirely expected by markets — it was the omission of the view that policy settings are no longer “accommodative” in the post-meeting statement that helped to propel the Aussie higher.
“By changing their view on the current stance of monetary policy, the FOMC is signalling that they are getting closer to a ‘neutral’ setting of policy,” said Joseph Capurso, Senior Currency Strategist at the Commonwealth Bank.
Markets initially interpreted that move as a sign the Fed may slow the pace of rate hikes in the period ahead as policy settings move to neutral, then restrictive, for economic growth.
However, upon examining the Fed’s updated economic and year-end funds rate forecasts, it was clear that despite acknowledging that policy settings are no longer accommodative, it still intends to increase rates at a decent clip in the 15 months ahead.
The median FOMC year-end funds rate forecast still point to another rate increase this year and another three in 2019, identical to those offered three months ago and still higher than what markets currently expect.
The Fed’s updated economic projections also indicated that it expects strong economic growth to help lower unemployment and keep core inflation just above its 2% target in the years ahead.
In his press conference, Fed Chairman Jerome Powell also offered a hawkish tone, suggesting that despite dropping the view that settings were no longer accommodative, they could still be described as accommodative as the funds rate still remains below the Fed’s estimate of the neutral rate level.
Combined, those factors acted to reverse initial weakness in the US dollar, resulting in the AUD/USD falling sharply back towards the levels it was trading at prior to the announcement.
With the Fed decision now out of the way, markets are likely to revert to being driven by sentiment and trade headlines during Thursday’s Asian trading session.
On the data front, Australia will receive quarterly job vacancies data at 11.30am AEST. While not usually a noted market mover, the RBA has put a lot of faith in this release in recent communications to justify its optimistic outlook for labour market conditions, so it could attract a bit of interest from traders.
Apart from a speech from Bank of Japan Governor Kuroda late in the Asian session, there’s little in the way of releases given the Fed, and RBNZ, rate decisions have now come and gone. The latter kept interest rates unchanged at 1.75% in September, as expected.
Later in the session, data highlights include Eurozone consumer confidence and money supply statistics, German consumer price inflation and consumer confidence along with the final reading of Q2 GDP, jobless claims, goods trade, wholesale inventories, durable goods orders and pending home sales from the United States.
Like the data calendar, the central bank schedule is also busy with Mark Carney, Mario Draghi and Jerome Powell the headline acts.
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