Australian dollar hinges on one word

Financial and commodity markets analytics

The Australian dollar is trading higher today’s trading session which is suprising given that local data today hit the market below expectations which points to the fact that external forces may be the key driver of the Aussie dollar in the nearest future.

Import export and trade balance figures released earlier today all came in lower than analysts’ forecasts but the Australian dollar bucked the trend by moving higher which may be in anticipation of what may happen later today when the US Federal Reserve release their latest interest rate decision followed by a monetary press conference.

The market has placed a more than 90 percent chance that the Fed will raise interest rates by 25 basis points so with this already priced in to currency markets, the main interest will be on the following monetary statement.

Analysts Macquarie Bank believe it may come down to a single word from the Fed whether the Aussie dollar sinks or swims with that word being “accommodative”

Gareth Berry and Thierry Wizman, Macquarie Bank.

 “With a hike fully priced in, the market reaction could hinge on whether policy settings are still described as ‘accommodative’ afterwards,” said Gareth Berry and Thierry Wizman from Macquarie Bank.

They believe if this word is removed from the Fed’s monetary statement that could be a sign that the central bank is hesitant about the amount of  further rate hikes that need to be delivered and as a result the Australian dollar may rally.

“Dropping that key phrase would suggest neutral policy settings are coming into view, which could be interpreted as a dovish development,” they added.


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