AUD USD pressured in Fed aftermath

AUD/USD plunged on Thursday as the US dollar surged in the aftermath of Wednesday’s interest rate hike by the Federal Reserve that lifted benchmark US interest rates by a quarter of a percentage point.

This rate hike itself had been widely-expected and largely priced-in to the strong US dollar even prior to the Fed’s announcement, but a couple of factors hinting at a slightly more hawkish Fed stance than had been anticipated led to a subsequent rise in the greenback.

Despite Federal Reserve Chair Janet Yellen’s repeated use of the word, “gradual,” in describing the pace of monetary tightening, the Fed’s projected pace of tightening and target rate for 2016 appear somewhat less than gradual. Also, the fact that Fed members were unanimous in their backing of a rate hike on Wednesday lends a tone of hawkish resolve to the Fed’s disposition.

On the Aussie side, although the Reserve Bank of Australia (RBA) kept rates on hold early this month due to recent positive economic data, especially on the employment front, the central bank has reiterated its capacity for cutting interest rates and easing monetary policy further should persistently weak inflation deem it necessary.

Overall, this points to a continued divergence in monetary policy between the Fed and the RBA, which should continue to weigh on AUD/USD. Thursday’s substantial drop brought the currency pair down below its key 50-day moving average to approach the bottom border of a parallel uptrend channel that has been in place since September’s six-year low around 0.6900.

On any breakdown below this channel, the next major downside objective resides at the key 0.7000 psychological support level, last approached in early November. With the long-term and short-term trends continuing to point to the downside, AUD/USD could soon see new multi-year lows. Any further decline below 0.7000 could then target key support around the 0.6800 level, which would confirm a continuation of the long-term downtrend.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.