Australian dollar crashes on hawkish FOMC, fewer Fed rate cuts

Data current as of 2/1/2024

Key points

• AUD/USD fell almost 100 pips in the day since January's FOMC meeting (1:03)
• Fed Chair Powell more hawkish than expected (2:24)
• Less than a 50% chance of a rate cut in March (3:45)
• AUD/USD hit a new year-to-date low on Thursday (4:38)
• 71% of AUD/USD traders at tastyfx are long (6:08)

AUD/USD price action

AUD/USD hit new year-to-date lows on Thursday below 0.6550. This slide of almost 100 pips was one of the sharpest reactions to news of the FOMC meeting among major pairs. This is a continued decline, with AUD/USD starting the year above 0.6800.

January FOMC meeting and US dollar

This sudden movement in the currency pair can be attributed to the outcome of January's Federal Open Market Committee (FOMC) meeting. The FOMC plays a crucial role in setting the monetary policy for the United States, which includes key decisions on interest rates. The chair of the Federal Reserve, Jerome Powell, adopted a more hawkish stance than was anticipated by many market participants. A hawkish outlook generally implies a preference for higher interest rates, which tends to strengthen the currency, in this case, the US Dollar (USD).

The shift in tone from the Fed chair spurred speculation among traders, with the perceived likelihood of a rate cut in March dropping to less than 50% (CME FedWatch tool). Rate cuts typically lead to a depreciation of the currency as lower rates decrease the yield on assets denominated in that currency, making it less attractive to investors. Consequently, AUD, being on the other side of the pair, suffered a decline.

Despite the recent downturn, sentiment among traders remains surprisingly bullish on the AUD/USD, with data from tastyfx showing that 71% of traders at tastyfx are maintaining long positions. This could be due to several reasons. Traders might be speculating that the drop is temporary or that the Australian economy will show resilience or even outperform expectations, leading to a potential rebound in AUD.

For traders, these market dynamics present both challenges and opportunities. The key to navigating such volatility is a thorough analysis of market indicators, economic data releases, and central bank communications. By understanding the implications of monetary policy decisions and maintaining a close watch on market sentiment, traders can make informed decisions about their positions.

Data current as of 2/1/2024

How to trade AUD/USD

1. Open an account to get started, or practice on a demo account
2. Choose your forex trading platform
3. Open, monitor, and close positions on AUD/USD

Trading forex requires an account with a forex broker like tastyfx. AUD/USD can be found in the "Major" pairs tab. Many traders watch other major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.