AUD under pressures as all eye on Federal Reserve

Daily Currency Update

The Australian dollar tracked lower through trade on Tuesday, testing a break below 0.71 US cents as investors pursue a cautious narrative in the lead up to the FOMC policy update and rate announcement. After last week's softer than expected CPI print, a robust US PPI print reignited inflation jitters, confirming expectations the Fed will announce an accelerated plan to monetary policy normalisation. Having eyed a break back above 0.72 last week, the AUD has unwound recent gains, marking intraday lows at 0.7090 and remains vulnerable to sustained short term weakness with the USD expected to be stronger for longer. This week's Fed announcement will prove key in guiding near and medium-term direction. Policymakers have adopted a more hawkish rhetoric in recent weeks, dropping key phrases and emphasising the importance of controlling sustained price pressures.  The market has high expectations for a definitive and perhaps aggressive policy shift and any sense the FOMC has fallen short in meeting expectations could drive USD weakness, while a more aggressive plan could fuel further dollar gains. We anticipate elevated volatility coming out of the announcement and are keenly attuned to key supports at 0.70 and 0.7180.