USD Dominates as Fed Reserve Flags Rate Hikes in '23
AUD
The AUD has taken a hit overnight after a hawkish outlook presented by the FOMC earlier this morning. Following the much-awaited FOMC meeting (see details in USD section below), equities were a sea of red and commodities also traded south, pulling the rug out from under the AUD. The Dow Jones, S&P 500, and NASDAQ trading -0.8%, -0.5%, and -0.2% lower, whilst Gold, Iron Ore, and Copper lost -2.7%, -0.8%, and -1.5% respectively. There is some hope for AUD to find some resilience today with the RBA’s Governor Lowe speaking at 10.10am this morning, importantly discussing recovery and expansion before the July board meeting that will rubber stamp any changes to the bond yield target and QE program. Further, Australia’s Unemployment Rate will come out at 11:30 and is likely to remain unchanged at 5.5% in May, whilst the Participation Rate could also inch a bit up to 66.1% from 66.0% prior but the expected jump in Employment Change to +30K from -30.6K will be the key to follow.
USD
The AUDUSD took a steep dive in the early hours of the morning to trade at a mid-April low of 0.7616 this morning. The FOMC is planning to close the door on its pandemic-driven expansionary monetary policy as officials projected an accelerated timetable for interest rate increases, and opened talks on how to end crisis-era bond-buying. Although the FOMC left monetary policy unchanged as widely expected, the AUDUSD slump comes off the back of revised inflation forecasts and more hawkish commentary from Fed Chair Powell. Powell noted that this is the meeting that the Fed “talked about talking about tapering”, and more importantly, the Fed policymakers’ interest rate projections, mostly known as dot-plot, suggested two rate hikes by the end of 2023 (prior to this meeting there we no predicted hikes for the same period). The Greenback was well backed as a result of the promising recovery signs and the US Dollar Index (DXY) reflected that, moving from 90.552 to 91.394.
EUR
The AUDEUR saw some minor gains despite the AUD lacking support, trading at 0.6347 at time of writing. The European stock markets were subdued and trading either side of flat with the FTSE up +0.2%, DAX down -0.1%, and CAC gaining +0.2%. Perhaps Euro weakness is the support that is propping up the AUDEUR, with EUR/USD tumbling from 1.2115 to 1.2045 after the FOMC data, reaching the lowest level since May 6. Currency markets will already be focusing on the ECB’s meetings next month, and of course the idea of whether or not the European Union is going to follow the path of the FOMC in a similar hawkish tone.
GBP
The AUDGBP lost ground overnight to trade at 0.5442 this morning. Overnight the UK's monthly CPI came in at 0.6% (0.3% expected) with the annual rate climbing to 2.1% (1.8% expected). Higher transport, clothing and recreational goods took inflation above the 2% target for the first time in 2 years. Little data coming out of the Brits today, with the only notable data on the docket being the monthly Retail Sales being released at 4pm tomorrow.
NZD
The AUDNZD trading slightly lower than levels seen yesterday, sitting at 1.0768. Strength from the Kiwi Dollar as a result of strong NZ GDP reading for the first quarter (Q1) of 2021 that saved the economy from falling into a technical recession. Q1 GDP rallied beyond 0.5% forecast and -1.0% prior on QoQ to 1.6%, per the latest release. Having witnessed the initial market reaction to the NZ GDP release, New Zealand’s economic calendar is empty, but RBA Governor Lowe could keep currency markets entertained.