The Australian dollar clawed back losses against the US dollar on Thursday after the Federal Reserve delivered a 0.25% rate rise on Wednesday and signalled further tightening. AUD/USD was trading at 0.7110, rebounding from a technical area where the 50- and 100-day SMAs converge. Risk sentiment improved on hopes of a de-escalation in the Middle East, while oil prices eased after Saudi Arabia said crude output would return to half capacity within days, weighing on the greenback given its oil linkages.
The US Dollar Index (DXY) slipped 0.10% to 100.23, a day after the Fed’s first increase in three years. The dot plot pointed to a Fed funds rate around 4.10%, and the Personal Consumption Expenditures (PCE) inflation gauge was projected at 3.7% this year before moving towards the 2% target by 2028. Money markets put the probability of another hike at 53% for the October meeting, according to Prime Terminal, while US jobless claims for the week ending 12 September fell to 196K from 206K versus expectations of 208K. Attention turns to a Friday speech by Fed Governor Bowman and August Industrial Production, while Australia’s calendar is otherwise quiet ahead of RBA Governor Michele Bullock’s expected remarks at 00:00 GMT.
Technical Levels and Rate Hike Outlook
We should closely monitor the AUD/USD as it trades around 0.7110, finding support at its 50-day and 100-day moving averages. Since the currency pair rebounded on easing geopolitical tensions and lower oil prices, we recommend using these technical levels to set tight stop-loss orders. Historical trends suggest that when AUD/USD holds these key moving averages during times of global market shifts, it often prepares for a brief period of steady trading.
We must also prepare for more interest rate hikes, especially since money markets show a 53% chance of another rate increase in October. With Fed Chair Warsh indicating that the policy rate could reach 4.10%, we believe hedging with US Dollar call options is a smart way to protect against a rising Greenback. Historically, when weekly jobless claims drop below the 200,000 threshold, as they just did by falling to 196,000, the US Dollar gains strong fundamental backing.
Commodity Strategy and Event Risk Management
Finally, we need to adjust our commodity strategies as Saudi Arabia rapidly restores its crude oil production capacity. Today’s upcoming speeches by Fed Governor Bowman and RBA Governor Michele Bullock will likely create quick price swings in the currency markets. We advise keeping trading volumes light today to avoid unnecessary risks before these major central bank policy updates are released.
