Thursday sees the AUDUSD pair continue its downward trend for the second day in a row, moving away from a nearly three-week high just above the 0.6500 mark. The pair has now hit a low of around 0.6400, a level not seen in over a week. This drop is largely due to the strong performance of the US Dollar (USD).
The USD Index (DXY), which measures the USD against other major currencies, is nearing a six-month high from last week. This is thanks to the Federal Reserve’s (Fed) positive outlook. As expected, the Fed kept interest rates at a 22-year high of between 5.25%-5.5% after a two-day policy meeting. The Fed also hinted at another possible rate hike in 2023 due to ongoing inflation concerns.
According to the ‘dot-plot’, rates are expected to peak between 5.5%-5.75% by the end of this year, with the benchmark rate predicted to be 5.1% next year. This suggests only two rate cuts in 2024, compared to the four previously projected. This positive outlook has led to increased selling in the US fixed-income market, pushing the yield on the two-year government bond to its highest level since July 2006. The 10-year US Treasury yield has also hit a 16-year high, further boosting the USD.
Higher rates in the US have reignited worries about economic challenges due to rising borrowing costs, reducing the appeal of riskier assets. This is reflected in the weaker performance of equity markets, which is benefiting the safe-haven USD. Additionally, China’s cautious approach to introducing more stimulus measures and speculation that the Reserve Bank of Australia (RBA) may have ended its rate-hiking cycle are driving investors away from the risk-sensitive Australian Dollar (AUD).
Investors are now awaiting the release of the Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and Existing Home Sales data from the US. These releases, along with the performance of US bond yields and overall risk sentiment, will likely influence the USD and the AUDUSD pair. However, given the current situation, it seems more likely that the AUD/USD pair will continue to fall."