The Australian dollar has plunged

The Australian dollar is tumbling on Thursday morning.

First, here’s the scoreboard as at 7.45am AEDT:

  • AUD/USD 0.7400 , -0.0098 , -1.31%
  • AUD/JPY 86.71 , 0.36 , 0.42%
  • AUD/CNH 5.1270 , -0.0616 , -1.19%
  • AUD/EUR 0.7038 , -0.0016 , -0.23%
  • AUD/GBP 0.5893 , -0.003 , -0.51%
  • AUD/NZD 1.0402 , -0.0005 , -0.05%

The reason for the sharp decline, particularly against the US dollar, has been the release of updated economic projections from the US Federal Reserve following the conclusion of its FOMC meeting earlier today.

FOMC members indicated that US interest rates were now likely to increase at a faster pace in the years ahead, helping to lift US bond yields and with it the US dollar.

“USD spiked up against most currencies, US 10-year Treasury yields and 2-year swap rates rose by almost 10bps [basis points] to 2.51% and 1.48%, respectively because the FOMC paved the way for more rate hikes in 2017,” said Elias Haddad, senior currency strategist at the Commonwealth Bank.

“The Fed’s median interest rate projections now imply three 25bps interest rate increase for 2017, up from two seen previously, and three 25bps interest rate increases in 2018 and 2019.”

The FOMC hiked interest rates by 25 basis points at this meeting to 0.5-0.75%, an outcome that was expected by all 103 economists polled by Bloomberg.

As a result, the Aussie has been crunched.

AUD/USD Hourly Chart

Whether that continues on Thursday will largely be determined by the release of Australia’s November jobs report at 11.30am AEDT.

Economists are looking for a rebound in employment of 20,000 leaving the unemployment rate at 5.6%.

While markets will initially react to these numbers, the split between full-time and part-time employment, along with quarterly underemployment which is a big area of focus for the RBA, may prove to be influential after the initial market move.

“The underemployment rate — those wanting to work more hours than they are currently working — has been rising and this is a measure the RBA has been highlighting as one of the reasons why the labour market has been ‘more mixed’ than what the headline rate might suggest,” noted Rodrigo Catril, currency strategist at NAB.

During the European session, markets will also receive flash manufacturing PMI readings for the eurozone and UK, UK retail sales and the Bank of England’s December monetary policy decision.

No change is expected in the latter.

In North American trade, inflation, real weekly earnings, flash manufacturing PMI, initial jobless claims, the Philadelphia Fed manufacturing index and NAHB housing market index will be released in the US.

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