It looks set to be another wild session for the Australian dollar

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The Australian dollar has opened Thursday’s session above the 74 cent level, boosted by strength in European and Asian stocks and an uneventful US FOMC meeting for June.

It was a spectacular recovery for the Aussie in the second half of Wednesday’s trading session, rallying nearly one full cent as strength in Asian and European stocks boosted risk assets across both regions.

After consolidating above the 74 cent level before the release of the FOMC policy statement and updated economic projections, the AUD/USD initially spiked to a session high of .7444 before retracing into the New York close, this time mirroring the movements in US stocks which fell sharply in the final minutes of trade.

“The FOMC downgraded its 2016 and 2017 GDP growth forecasts to 2% (previously 2.2%) and 2% (previously 2.1%), respectively,” said Elias Haddad, senior currency strategist at the CBA.

“The unemployment rate forecast for 2016 and 2017 is unchanged (4.7% and 4.6%, respectively) but 2018 was revised 0.1% higher to 4.6%. Core PCE inflation is projected to rise to 2% by 2018 (no change from previous forecasts).

“Importantly, the longer term FOMC’s interest rate projections (the ‘dot plot’) were lowered significantly. The median expectation is for the fed funds rate to rise to 1.625% by end 2017 (prev 1.875%), 2.375% in 2018 (prev 3%) and 3.0% over the longer-run (prev 3.25%).”

Nearer term, most FOMC members forecast two 25 basis point increases were likely in 2016, unchanged from previous estimates.

Eventually the AUD/USD closed the session buying .7404, a level that it continues to oscillate around in early Asian trade today.

AUD/USD Hourly Chart

Turning to today’s session in Asia, the movements in the Aussie are likely to be dictated to by the release of Australian jobs data for May at 11.30am AEST.

Economists expect employment growth of 15,000, leaving the unemployment rate steady at 5.7%, the lowest level seen since September 2013.

“In line with consensus, we anticipate Australia’s economy to add 15,000 jobs in May but we are looking for a 0.1% lift in the unemployment rate to 5.8%,” says Haddad. “This would be AUD supportive.”

Outside of Australia’s jobs report, markets will also receive a speech from RBA assistant governor Christopher Kent at 12.30pm AEST along with the Bank of Japan’s (BOJ) June monetary policy decision later in the session.

“The outside risk for AUD is an unexpected policy easing by the BoJ today. Should the BoJ ease, it will create a USD bid in the market and weaken AUD/USD,” notes Haddad.

While most expect that the BOJ will leave policy steady at this meeting, markets are well aware the the bank can and has surprised in the past when it comes to monetary policy decisions.

Adding to the intrigue around this meeting, the USD/JPY fell to as low as 105.48 in overnight trade, the lowest level seen since October 2014.

There is no set time scheduled for the policy decision, although it’s likely to arrive shortly after 1pm AEST if recent history is anything to go by.

The general rule of thumb is the quicker that the announcement is delivered, the less likely it is that the bank has made any adjustments to policy.

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