AUD / USD and NZD / USD Daily Fundamental Forecast – Dovish RBA sinks Aussie ahead of key Federal Reserve meeting
The Australian and New Zealand dollars are under pressure Tuesday, with the Aussie hit the hardest after the Reserve Bank of Australia (RBA) dampened investor hopes for a restrictive swing ahead of the Fed’s two-day monetary policy meeting.
Last week, the Australian dollar tested its highest level since July 6th as persistent inflation speculated that the RBA could raise interest rates as early as next year. However, policymakers pushed against the speculators by -pearing reluctant, leading to today’s sell-off.
At 08:55 GMT the AUD / USD is trading at 0.7466, down 0.0055 or -0.73% and the NZD / USD is at 0.7166, down 0.0022 or -0.30% .
In its monetary policy statement, the RBA stressed that inflation was still too low, but also dropped its previous forecast that rates would not likely rise until 2024, and cut a key target for the -ril 2024 government bond.
RBA Governor Lowe explains recent Central Bank decisions
Reserve Bank of Australia Governor Philip Lowe said the central bank decided to abandon its yield target on Tuesday as its effectiveness waned as the economy improved and interest rate expectations changed, Reuters reported.
“Given our forecasts, it is still entirely plausible that the first cash rate increase will not occur before the current target bond matures – the -ril 2024 bond,” Lowe said in an opening statement at an online briefing after the RBA policy meeting.
“But it is now also plausible that an increase in the cash register rate could be -propriate in 2023.”
Lowe said the latest data and forecasts don’t justify a rate hike in 2022.
Earlier, the RBA left its cash rate at a record low of 0.1%, but dropped both its commitment to keep bond yields low and its forecast not to hike rates through 2024.
The focus is now shifting to the Federal Reserve
Traders expect the Fed to announce an aggressive strategy. Not only will they announce the curtailment of their massive incentives, but the futures markets are even predicting up to three rate hikes in 2022.
The US Federal Reserve is expected to have plans on Wednesday to cut its monthly bond purchase program by $ 120 billion on inflation.
Investors continued to raise expectations on Monday that high and persistent inflation would force the Fed to hike rates sooner and faster than policymakers forecast. According to FedWatch of the CME Group, contracts in Federal Fund Futures now imply a rate hike of three quarter points next year compared to two at the end of last week.
Short term outlook
Watch out for selling pressures to bolster the Aussie and Kiwi if the Fed meets market expectations.