Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Fed cuts big, but USD rebounds late
The US dollar was down sharply overnight, falling to the lowest level since July 2023, after the Federal Reserve announced a jumbo 50-basis point cut, but a late reversal saw the greenback stage a comeback.
The Fed finally joined the rate-cutting party – Switzerland, Canada, Europe and UK have already commenced policy loosening this year – with a larger than usual 50bps cut. Markets had been divided before the announcement with a 70-30 split in in market pricing in favour of a 50bps move.
However, in an unusual move, there was one dissent from Federal Reserve governor Michelle Bowman, the first dissent since 2022 and the first time a Washington-based governor, rather than a regional president, has dissented since 2005.
Additionally, the Fed’s projections – the so-called “dot plots” – signal only another 50bps of cuts in 2024. This is lower than the 70bps of cuts priced in markets and might have contributed to the later reversal.
Initially, US shares jumped, bond yields fell and the US dollar was lower. However, these moves quickly reversed.
In FX, the AUD/USD briefly jumped about 0.6800 before reversing from this key technical level at the year-to-date highs. The AUD/USD ended the day up 0.1%.
Similarly, the NZD/USD also initially spiked higher before easing, closing 0.4% higher.
In Asia, the USD was also lower before rebounding. The USD/JPY ended 0.1% lower, USD/CNH fell 0.2% while USD/SGD also dropped 0.2%.
Aussie hangs on employment data
Australia’s August job report is due at 11.30am AEST. We’re looking for a 30k rise in employment in the labor force data. The participation rate (67.1%) is expected to remain stable, which should maintain the 4.2% unemployment rate.
Job growth has been bolstered by robust population expansion and increased healthcare expenditures.
Looking forward, however, we believe that lead indicators and previous consecutive quarters of GDP growth below trend indicate a slowing of the labor market momentum, and we anticipate that the unemployment rate will continue to rise over the next quarters. That could pressure the AUD/USD.
Once again, the AUD/USD is close to its year-to-date highs, having peaked out for a third time in two months around the 0.6800 level.
Although the AUD/USD pair recovered from the 200-day moving average of 0.6628, the overall setup and rejection of resistance in the wider range still suggest there may be further short-term decline.
GBP boosted with BoE likely on hold
At tonight’s Bank of England meeting, we anticipate that the Bank will maintain its current guidance and rates. We anticipate the subsequent 25bp decrease in November, followed by a quarterly pace that will see the terminal rate hit 3.50% by early 2026.
The Bank is also expected to publish its plans for Quantitative Tightening’s pace in the upcoming year. Over the next year, the Monetary Policy Committee is expected to lower the Asset Purchase Facility (APF) by a total of £100 billion, which will be comprised of £13 billion in active sales and £87 billion in redemptions.
Re below chart, the BOE is now perceived the least dovish of the G3 central banks. Therefore, on downswings, the GBP is probably going to be supported strongly.
Overnight, the GBP was higher after an unexpected lift in the August inflation reading. The key psychological support for the GBP/USD is around 1.30, while the topside level is still at 1.3450.
USD bounces from 14-month lows in volatile session
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 16 – 14 September
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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