Australian dollar at the mercy of the Fed

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The Australian dollar is trading in a tight trading range today as the market gears up for todays US Federal Reserve rate decision which will see the differentials in rates between the US and Australia grow even further.

The market has fully priced in a 25-point basis hike tomorrow from the Fed so the main focus will be on the following monetary statement for signs on how many further rate hikes the `fed will deliver

“The market’s focus is likely to be on whether the median dots shift up and how the Statement and Jermome Powell choose to characterise the forward-guidance language,” said Rodriogo Catril, Senior FX Strategist at the National Australia Bank.

The Australian dollar has enjoyed widespread popularity over the last decade as investors from all parts of the globe have invested in the currency due to its higher yield and now that this advantage is disappearing the outlook for the Aussie remains uncertain.

Most analysts predict that the RBA will not lift rates until late 2019 at the earliest and rumours are growing that the central bank may even need to cut rates first which would be an absolute disaster for the Australian dollar.

The currency has also been driven by high commodity prices such as iron ore, Australia’s biggest export but this advantage is also coming under fire after US President Donald Trump announced new steel tariffs to the US which is expected to reduce demand for Australia’s biggest commodity.

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