The Aussie dollar is in a holding pattern before the Fed's rate decision

Photo by Sean Gallup/Getty Images

The Australian dollar is in a holding pattern ahead of tomorrow’s US FOMC rate decision.

The AUD/USD traded in a thin range between .7475 to .7523 on Tuesday, eventually moving back to where it began the trading session.

Exciting stuff, right?

David de Garis, senior economist at the NAB, summed up the overnight price action perfectly in just one sentence.

“The USD has been whipped around a little, rallying earlier in the session, sold lower, but then making a comeback later in the session,” he said.

Essentially, the sequential movements in the Aussie were the opposite.

AUD/USD 5-Minute Chart

Here’s the scoreboard as at 7.45am in Sydney:

  • AUD/USD 0.7498 , 0.0002 , 0.03%
  • AUD/JPY 86.29 , 0.06 , 0.07%
  • AUD/CNH 5.1890 , -0.0013 , -0.03%
  • AUD/EUR 0.7056 , 0.0007 , 0.10%
  • AUD/GBP 0.5919 , 0.0005 , 0.08%
  • AUD/NZD 1.0402 , 0.0001 , 0.01%

The reason for the lack of movement is because everyone is waiting for the US Fed’s December interest rate decision that will arrive at 6am AEDT on Thursday morning.

With a rate hike entirely expected by markets, it will be the Fed’s updated economic projections, Janet Yellen’s press conference, along with the FOMC’s view on where the Fed funds rate will sit in the years ahead, that will drive the price action in not only currency markets, but markets as a whole.

“The focus for market participants will be on the FOMC’s median Fed funds rate projection, the so called ‘dot plots’,” said Joseph Capurso, senior currency strategist at the NAB.

“We expect the ‘dot plot’ to continue to imply two 25bps interest rate increase for 2017, three 25bps interest rate increases in both 2018 and 2019 and no material change to the longer run Fed Funds rate estimate of 2.75-3.0%.”

Capurso says that with the Fed also expected to lift its 2017 and 2018 GDP growth and inflation forecasts, it “can support a modest upward revision to US interest rate expectations in favour of the USD”.

Before the Fed decisions arrives, there’ll likely passing interest on the release of latest Westpac-MI Australian consumer sentiment report for December at 10.30am AEDT along Japan’s Q4 Tankan survey that will follow 20 minutes later.

Australian treasurer Scott Morrison will also speak before the Australasian Finance and Banking conference in Sydney later in the session.

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