AUD surges higher as Fed dispel hopes for faster rate hikes

Daily Currency Update

The Australian dollar surged through trade on Wednesday outperforming most major counterparts on the heels of the FOMC policy update and accompanying press statement. Price action leading into the all-important Fed meeting was largely muted as investors sidelined major bets until after the FOMC’s intentions were laid bare. Having tracked toward 0.7150, the AUD surged higher crashing back through 0.72 and 0.7250 after the Fed offered few surprises and failed to be drawn on some of the market's more optimistic expectations. As anticipated the FOMC elected to raise rates by 50 basis points and forecast the beginning of balance sheet reduction. Fed Chair Powell reiterated the Fed’s belief inflation remains too high, while the economy has maintained momentum and labour demand is high, providing ample scope for a series of 50 basis point hikes through the months ahead. While overtly Hawkish Powell quashed suggestions the Fed may accelerate the pace of rate hikes and issue a 75-basis point increase. 2 year and 10-year rates fell sharply on the heels of this comment and the USD followed allowing the AUD to touch intraday highs at 0.7256. With a major risk event now behind us and investors correcting US rate expectations there is scope for more AUD upside should the RBA introduce a more aggressive monetary policy tightening cycle in June. Elevated wage data later this month may see markets front-run any policy change and price in front-loaded rate adjustments.