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AUD/USD slumps to multi-week lows near 0.71 following FOMC announcements

  • Fed hikes the policy rate by 25 basis points as expected.
  • Chairman Powell's hawkish tone lifts the dollar.
  • Coming up: Australian employment data.

The AUD/USD pair lost nearly 100 pips in the last hour after the dollar gathered strength on the back of the FOMC Chairman Jerome Powell's hawkish tone. The pair, which spent the majority of the day near the 0.72 handle, was last seen trading at its lowest level since early November at 0.7103, losing a little over 1% on a daily basis.

As expected, the Fed decided to hike its policy rate by 25 basis points to 2.25% - 2.5% range. In its policy statement, the FOMC said that some further gradual increases in the target range for the federal funds rate will be consistent with the sustained expansion of economic activity and strong labour market conditions. In the updated economic projections, the Committee reduced the number of expected rate hikes in 2019 to two from three.

  • FOMC policy statement changes: Side-by-side comparison to the previous statement.
  • FOMC raises the target for fed funds rate by 25bp to 2.25% - 2.5%.

While speaking in the press conference, Chairman Powell reiterated that politics wouldn't influence the Fed's decisions and added that the policy at this point didn't need to be accommodative. With the initial market reaction, the US Dollar Index rose above the 97 handle from 96.60 to reflect a broadly stronger greenback. At the moment, the DXY is up 0.04% on the day at 97.02.

Although the dollar's rally was relatively small, the fact that stocks markets came under a heavy selling pressure hurt the risk-sensitive currencies such as the AUD and forced the pair to suffer heavy losses. During the Asian session on Thursday, investors will be paying close attention to the Australian employment data for fresh impetus.

Technical levels to consider

The initial support for the pair aligns at 0.7080 (Nov. 1 low) ahead of 0.7045 (Oct. 29 low) and 0.7000 (psychological level). On the upside, resistances are located at 0.7195/0.7200 (100-DMA/psychological level), 0.7250 (20-DMA) and 0.7320 (200-DMA).

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