The Australian dollar soared in overnight trade, rallying in unison with global stocks following the release of the US Federal Reserve’s September monetary policy decision.
While the Fed appears to be moving closer to raising rates, noting in its monetary policy statement that “the committee judges that the case for an increase in the federal funds rate has strengthened”, it was the Fed’s economic projections — specifically the FOMC’s dot plot on individual member expectations of where interest rates will sit in the years ahead — that undermined the US dollar, helping the Aussie to scoot higher in the latter part of US trade.
“The FOMC kept interest rates on hold and paved the way for a December rate hike (53% priced-in),” said Elias Haddad, senior currency strategist at the Commonwealth Bank, in his morning note.
“However, the FOMC also signalled via its ‘dot plot’ and economic/inflation projection that its interest normalisation process will be more gradual which undermined the USD and pushed 10-yr Treasury yields down 3.5bps to 1.655%.”
While three FOMC members dissented against the September policy decision, arguing that rates should have been increased on this occasion, the FOMC’s Fed fund rate projections overrode this fact, with the median expectation for rate hikes over the next 15 months now standing at three, down from five from the prior forecasts.
Three members also indicated that they believe that there’ll be no rate hike at all in 2016. There were also further downward revisions made to the longer-term projections, placing further pressure on US dollar.
As a result, the Aussie finished the session buying .7623, up 0.89% from Tuesday’s close.
The AUD/USD currently buys .7627, the highest level seen since September 9. It has now gained 2.6% from the lows seen early last week.
After a whirlwind 24 hours for the Aussie, the central bank onslaught will continue today with RBA governor Philip Lowe appearing before the House of Representatives economics committee from 10am AEST.
“There will be plenty of opportunity for committee members to ask questions about RBA policy, perhaps the new/refreshed inflation target agreement between the Bank and the Treasurer, or even the RBA’s thinking on central bank negative interest rate policy that the Bank of Japan seems to be stepping back from that now,” said David de Garis, senior economist at the ANZ.
Later in the session, Mario Draghi, ECB president, and Mark Carney, governor of the Bank of England, will also be in action, delivering speeches at separate events in Germany.
On the data front, the calendar is full of second-tier data releases in Europe and the US, although none appears likely to move markets, including the Aussie, significantly in one direction or another.
“It’s rather light on the data front tonight with US jobless claims the likely pick for markets tonight along with the UK CBI Trends Survey for another update on UK post-Brexit poll confidence and activity from orders and prices,” says de Garis.
“For completeness, there’s the Chicago Fed National Activity Index, US existing home sales, the leading index and the Kansas City Fed manufacturing index.”
That suggests that there is to be a market moving event for the Aussie over the next 24 hours, it’s likely to arrive from Lowe’s appearance later this morning.
Here’s the current Aussie dollar scoreboard as at 8.15am AEST.
- AUD/USD 0.7627 , 0.0004 , 0.05%
- AUD/JPY 76.58 , 0.13 , 0.17%
- AUD/CNH 5.0848 , 0.0018 , 0.04%
- AUD/EUR 0.6814 , 0.0003 , 0.04%
- AUD/GBP 0.5850 , -0.0001 , -0.02%
- AUD/NZD 1.0395 , 0.0031 , 0.30%
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