AUD edges upward as markets whippy following Fed policy update

Daily Currency Update

The Australian dollar advanced through trade on Thursday, buoyed by a broadly weaker US dollar. Having tracked sideways through the domestic session, the AUD lurched upward overnight in what was a whippy trading session as markets scrambled to respond to softer-than-anticipated US PPI data and a somewhat hawkish Fed policy update. PPI data was weaker-than-anticipated, elevating hopes for sustained downward pressures on headline inflation indicators. With core figures returning to pre-covid levels, the AUD was lifted toward intraday highs at US$0.6830 as the USD slumped to fresh lows ahead of the FOMC policy update. With the AUD poised to consolidate a break above US$0.68, the FOMC surprised analysts by offering a more hawkish forward outlook. While leaving rates on hold, median policymaker projections expected a raise rates at least twice more, compared with the one additional hike priced in by market participants. The mismatch between market and Fed expectations forced the AUD to give up gains, slumping back toward the daily open at US$0.6760. Fed Chair, Jerome Powell, then addressed the Press and the AUD found support in his comments. Powell noted future hikes would be data-dependent and seemed reluctant to label this month’s policy decision as a “skip”, implying there is no set expectation among policymakers that a rate hike will be issued next month. The AUD bounced back toward US$.68 and traded just below that handle on open, this morning.

With the USD on the back foot, attentions turn to local employment data, China activity data, US retail sale and the European Central Bank (ECB) policy meeting.