Australian Dollar Extends Losses

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The Australian dollar has edged lower today. Earlier, AUD/USD dropped to 0.6654, its lowest level since May 2020.

Risk sentiment has soured after Russia announced that it is moving quickly to annex territories that it has captured in Ukraine. European leaders quickly denounced the move as a “sham”. An annexation would seriously escalate the conflict in Ukraine, as Russia could argue that any fighting in the annexed territory was an attack on sovereign Russian land. President Putin also ordered the mobilization of 300,000 reservists, an indication of how badly the campaign is going for Moscow.

Fed poised to deliver 75bp increase

All eyes are on the Federal Reserve which wraps up its policy meeting later today. The Fed is expected to hike by 0.75%, which would bring the benchmark rate to 3.25%. This move would be significant as rates would move above the neutral rate level of 2.5%, into restrictive territory. There is an outside chance that the Fed will raise rates by a full point, which would unnerve the markets and likely send the US dollar sharply higher.

Aside from the rate hike, investors will be keenly monitoring the Fed’s latest quarterly forecasts for the economy. This will include projections for unemployment and interest rate levels. The Fed is expected to remain hawkish and argue that the price of higher unemployment and a further rise in rates is the painful but necessary price to rein in inflation.

RBA says rates to increase

The RBA minutes of the September meeting didn’t contain any surprises. The minutes reiterated the message that further rate hikes are coming, but the size of the hikes will be data-dependent. At the meeting, members argued over whether to raise rates by 25bp or 50bp – in the end, the Bank went for the latter option, bringing the cash rate to 2.35%. With no inflation or employment data prior to the October meeting, RBA members may again be split over how much to tighten. This should make for an interesting meeting that could trigger volatility from the Australian dollar.

AUD/USD Technical

• AUD/USD has support at 0.6623 and 0.6523
• There is resistance at 0.6769 and 0.6869