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AUD/USD – Aussie Drops Sharply After Historic Rate Hike

The Australian dollar has nosedived on Thursday, losing close to 100 points. In the North American session, AUD/USD is trading just above the 0.71 line. The markets have returned their focus to economic events after the Federal Reserve raised interest rates by 0.25%. In the US, Unemployment Claims dropped to 271 thousand, while the Philly Fed Manufacturing Index looked awful, with a reading of -5.9 points. The only Australian release on the schedule in a minor event, the RBA Bulletin.

After months of speculation and anticipation, the US Federal Reserve raised interest rates by 0.25% at its policy meeting on Wednesday. This marked the first rate move upwards since June of 2006. The Fed had been sending a steady of stream of hints that it was intending to tighten monetary policy since the last policy meeting in late October. This gave the markets ample time to price in a rate hike, but the weak Aussie still took a hit after the rate move. This minor tightening move by the Federal Reserve is expected to have limited economic impact, but the psychological aspect cannot be overestimated, as the Fed has given the US economy a critical vote of confidence, and has signaled that additional rates are likely over the course of 2016. The carefully-crafted Fed strategy, which made sure that the markets were well-aware that a December hike was a likely scenario, contrasts sharply with the bungled approach of the ECB, which failed to communicate properly with the markets, which led to complete shock in the markets when the ECB failed to take any significant monetary steps at its December policy meeting, resulting in a sharp ascent by the euro.

There was positive employment news out of the US on Thursday, as Unemployment Claims fell to 271 thousand last week, down from 282 thousand. The US labor market has improved nicely, as the economy is close to full employment, with jobless claims and the unemployment rate at low levels. This is a major reason that the Federal Reserve felt comfortable tightening monetary policy and raising interest rates at the present time. Meanwhile, the US manufacturing sector continues to struggle, as the Philly Fed Manufacturing Index came in at -5.9 points, its third decline in four months.

Thursday (Dec. 17)

*Key releases are highlighted in bold

*All release times are GMT

AUD/USD for Thursday, December 17, 2015

AUD/USD December 17 at 15:35 GMT

AUD/USD 0.7189 H: 0.7216 L: 0.7179

AUD/USD Technical

S3 S2 S1 R1 R2 R3
0.6931 0.7063 0.7100 0.7213 0.7349 0.7440

Further levels in both directions:

OANDA’s Open Positions Ratio

AUD/USD ratio is unchanged, reflective of the lack of movement we are seeing from the pair. Long positions have a strong majority (56%),  indicative of trader bias towards the pair moving higher.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher [4]

Currency Analyst at Market Pulse [5]
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.
Kenny Fisher

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