In Advance of the Fed Minutes, the AUD Tanks and the USD Soars
Added: (Thu Jan 19 2023)
Pressbox (Press Release) -
The Australian Dollar (AUD) was dealt a heavy blow late Tuesday as the US Dollar (USD) gained significant ground against its peers, with traders taking a defensive stance across many asset classes.
The AUD was trading at its lowest level in over 10 years following the release of minutes from the US Federal Reserve’s (FED) latest policy meeting. The minutes showed Fed policymakers had ruled out further rate cuts for the foreseeable future. This sent shockwaves through markets and resulted in investors fleeing to the relative safety of USD assets.
The former New York Federal Reserve President, William Dudley, commented, “if a recession unfolds, it will be a Fed-induced slowdown.” He noted that the US central bank could be responsible for creating an economic downturn due to its recent decisions to keep rates steady and pause its quantitative easing program.
Economists have primarily criticised the FED for being too slow in reacting to changing economic conditions. The minutes of the latest policy meeting revealed that policymakers had discussed how their decisions could harm the economy in the long run. This was particularly concerning given that many experts already fear a possible recession.
The minutes of the latest Federal Open Market Committee (FOMC) meeting are due to be released later and could shed significant light on the board’s outlook for the tightening cycle. Investors will closely monitor these minutes as they attempt to gauge the level of risk that may arise from the Fed’s policies.
The FOMC meeting minutes will likely highlight potential economic risks should additional rate hikes occur soon. This is especially pertinent given that many experts have voiced concerns over a possible recession amid a slowing global economy. The minutes could provide further insight into how policymakers intend to navigate this uncertain environment.
Despite this bleak outlook, there may still be some hope for AUD holders as some experts are predicting that recent declines may have been overdone, suggesting that there could be room for prices to rebound going forward should sentiment improve or if central banks decide to resume easing measures once more.