Markets price 24 bps of Fed hikes by year-end while RBA minutes suggest a pause amid economic softening.
The Australian dollar remains under pressure against the US dollar as Federal Reserve tightening expectations overshadow dovish signals from the Reserve Bank of Australia. Traders continue to price in 24 bps of Fed rate hikes by year-end, down slightly from 25 bps before the latest US CPI data, which aligned with forecasts.
The RBA recently softened its stance after raising rates to 4.35%, with one policymaker dissenting. Meeting minutes and officials’ remarks indicate a pause to assess the impact of prior hikes, as economic data shows rising unemployment and negative supply shocks.
While the Fed is expected to drop its easing bias, focus will shift to the dot plot and forward guidance. If the Fed endorses market pricing, it could reinforce a tightening bias, further supporting the USD. Elevated energy prices due to US-Iran tensions may also pressure the Fed to act.