Aussie shrugs after inflation report



AUD/USD has dropped lower today and is trading at 0.6252, down 0.43%.

Fed expected to remain aggressive

The Federal Reserve has signalled that it plans to remain hawkish, as the relentless battle with spiralling inflation continues. This aggressive stance was reaffirmed by Philadelphia Federal Reserve President Patrick Harker on Thursday. Harker stated that higher interest rates had failed to curb inflation, and the Fed would have to continue raising rates “for a while”. He added that rates would be “well above” 4% by the end of the year. Currently, the benchmark is at 3.25%, with the Fed holding its next meeting on November 2nd.

The markets have received the Fed’s message loud and clear, and have priced in a 0.75% hike at the November 2nd meeting and in December. The Fed has already raised rates by 0.75% at three straight meetings, and the steep rate-tightening cycle is set to continue, which is good news for the strong US dollar.

Australia released September’s employment report on Thursday, which indicated that the labour market remains robust. The economy added 13,300 full-time jobs, with a decline of 12,400 part-time jobs. This follows a superb gain of 55,000 jobs in August. The strong labour market has allowed the Reserve Bank of Australia to hike rates in order to combat inflation, but the central bank has eased up on tightening.

The RBA surprised the markets with a small rate hike of 0.25% at its October meeting, which was smaller than expected.  At the meeting, the RBA noted that inflation remains too high, but the modest rate hike fits in with that the central bank’s projection that inflation will peak in early 2023. The RBA meets on November 1st, a few days after the September inflation report, which will likely be a major factor in the RBA’s rate decision. The markets have priced in 0.25% increases at the November and December meetings.


AUD/USD Technical

  • AUD/USD continues to test support at 0.6250. The next support level is 0.6121
  • There is resistance at 0.6331 and 0.6460


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