AUD/USD reaches for blue skies on RBA sentiment

• AUD/USD has rallied as the RBA is expected to move towards policy tightening. 
• US dollar is on the backfoot following the Fed.

AUD/USD is stalling in the last hour of recent trade following a strong rally to the upside. The price has jumped from a low of 0.7282 to a high of 0.7393 on the day so far and is printing 1.21% higher at the time of writing. 

Firstly, the Federal Open Market Committee's two-day meeting drew to a close on Wednesday and failed to surprise markets with anything more hawkish than what was anticipated. The bar for a hawkish surprise at the Fed was high and given how much was priced in, the US dollar has failed to hold up. 

The dollar index (DXY), which measures the US dollar vs. a basket of currencies, fell as much as 0.6% on Wednesday. Today, the index has fallen by almost 0.8% as traders parse the Fed's chairman's less hawkish statements from the press conference:

• “We do anticipate inflation will move back down. It may take longer than we’d like.”
• “I guess I would say the expectation still is that inflation will come down in the second half of this year, but we still expect inflation to be high this year.”
• We expect inflation to remain high through the middle of the year, begin to come down, then begin to come down more sharply next year.”

Meanwhile, the release of stronger than expected February Australian labour data has drawn in further speculation that the Reserve Bank of Australia will be moving towards tighter monetary policy.  ''At 4.0%, the February unemployment rate sank to a near 14 year low, while the employment change was double market expectations at 77.4K. The labour report did not contain fresh numbers for wage inflation.  However, the tightness of conditions clearly suggests scope for upward pressure on this front,'' analysts at Rabobank explained. 

The analysts noted that, last week. the RBA governor Phillip Lowe opened the door a little further towards the possibility of a rate rise this year with his comments that it was ‘plausible’ that rates will rise this year and that it would be prudent to prepare for a move.  

''Lowe also expressed concerns about a potential change in the psychologically of inflation.  He remarked that in recent years domestic firms have been reluctant to put up prices which in turn made it difficult to raise wages. In the current environment, however, is may be easier to raise both''