AUD/USD surrenders 0.6600 on Fed’s hawkish policy, focus shifts to PMIs

• AUD/USD has slipped below the cushion of 0.6600 on pessimism after a hawkish policy from the Fed.
• The Fed sees terminal rates at 4.6% vs. the prior projection of 3.8%.
• Australian markets are closed on account of National Mourning Day.

The AUD/USD pair has slipped below the critical support of 0.6600 in the Tokyo session. The asset is falling like a house of cards after the announcement of the interest rate decision by the Federal Reserve (Fed). The asset has continued its two-day losing streak and has dropped below the round-level support of 0.6600. It is highly expected that the asset will find a cushion around the psychological support of 0.6500.

Market participants had priced in the third consecutive 75 basis points (bps) interest rate hike by the Fed. What has weakened the risk-sensitive and commodity-linked currencies is the hot hawkish guidance. The Fed has sacrificed job creation, growth prospects, housing sector, and demand for durable goods to achieve its foremost objective of bringing price stability.

The target for terminal rates is set at 4.6%, significantly higher than the prior determined peak of 3.8%. This will squeeze a big pool of funds from the market and will slow down the extent of loan disbursement. It could also result in higher delinquency costs for the loan providers. A tremendous decline in loan disbursement will result in postpone of expansion plans by various companies.

Meanwhile, Australian markets are closed on Thursday on account of National Mourning Day. Therefore, the entire focus will remain on the US dollar index (DXY)’s motion. Going forward, investors will keep an eye on the S&P Australian PMI data, which will release on Friday. The Manufacturing PMI is seen higher at 54.0 vs. the prior release of 53.8. While the Services PMI data is expected to land extremely lower at 47.7 against the former figure of 50.2.