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Australian Dollar US Dollar (AUD/USD) Exchange Rate Sinks to Three-Month Low Ahead of Fed Rate Decision

US Dollar Exchange Rates

AUD/USD on the Back Foot as Markets Brace for Fed Rate Hike

The Australian Dollar US Dollar (AUD/USD) exchange rate found itself on the retreat on Wednesday as markets await the Federal Reserve’s latest policy meeting.

At the time of writing AUD/USD remains close to the session’s opening levels, with the pairing in a holding pattern ahead of the Fed rate decision.

US Dollar (USD) Firm in Run up to Expected Fed Rate Hike

The US Dollar remained in a position of strength against the Australian Dollar and most other majors on Wednesday in advance of an expected rate hike from the Federal Reserve later in the session.

With CME Group’s FedWatch tool placing the odds of a March hike at around 95%, it seems all but confirmed that the Fed will deliver its first rate hike of the year.

However with most investors having already priced in the move some time ago the hike itself is unlikely to prompt much movement in the US Dollar.

Instead markets will be focused on the outlook from the Federal Open Market Committee (FOMC), particularly on whether policy makers will forecast up to four rate hikes this year, with analysts increasingly optimistic that the FOMC will strike a bullish tone.

Steven Englander, head of research at Rafiki Capital Management said;

‘Markets have taken a very hawkish turn with respect to the FOMC in recent days. One big tell is that 2-year yields and expected rates in fed funds futures markets went up yesterday despite the absence of economic data and a seriously downbeat equity market.’

These bullish tones caused investors to flock to USD, weighing heavily on market risk appetite and leaving the Australian Dollar largely subdued.

AUD/USD Forecast: Weak Wage Growth to Further Hamper the Australian Dollar?

While the Fed rate hike will undoubtedly dominate currency markets over the coming session, looking past that the AUD/USD exchange rate could also find itself being moved by the release of Australia’s latest labour report.

Economists forecast that Thursday’s data will show that employment continued to expand at a robust pace in February.

However any gains for the Australian Dollar may be limited by the accompanying earnings figures, with suggestions that wage growth will have remained subdued last month.

Meanwhile the US Dollar could see some movement in the run up to the Fed rate decision, with a slight uptick in US hokes sales likely to provide some lift for USD.