AUD/USD drops from daily highs towards 0.6918 post-Fed hike

• The US Federal Reserve hiked rates by 75 bps.
• The AUD/USD spiked to fresh highs as a reaction, then tumbled towards the 1-hour 50-SMA.
• The US Federal Reserve Chairman Jerome Powell’s press conference is to begin.

On Wednesday, the US Federal Reserve raised rates by 0.75%, not as initially expected by market participants, as Federal Reserve Chairman Jerome Powell discounted a hike of that size. Nevertheless, the article published on Monday about the possibility of the Fed raising rates by the abovementioned size proved true. At the time of writing, the AUD/USD seesaws around the 0.6915-70 range as a reaction to the Fed’s monetary policy meeting.

Summary of the FOMC monetary policy statement

The FOMC stated its commitment to return inflation to the 2 percent target. They added that “inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”

Regarding the US economic outlook, the Fed noted that the economic activity picked up after the negative reading in Q1. They added that the Fed would continue reducing its holdings, so the Quantitative Tightening (QT) began.

Also, in the same meeting, the Federal Reserve Open Market Committee revealed the Summary of Economic Projections (SEP), which showed that the Fed reduced its expectations for growth from 2.8% to 1.7%, while the unemployment rate would uptick to 3.7% from 3.5% projected in March.

Regarding their outlook about inflation, Fed officials expect the Core PCE at 4.3%, higher than the 4.1%, while the Federal Funds Rate by the end of 2022 is expected at 3.4%, 150 bps more elevated than the 1.9% projected in March.

It’s worth noting that the Federal Reserve expects another 50 bps hike in 2023, and then in 2024 would be the first-rate cut. Nevertheless, contrary to what the Bank of England (BoE) said in their last meeting, slashing growth to negative territory, the Fed appears optimistic.

AUD/USD 1-Hour Chart

Key Technical Levels