AUD/USD and NZD/USD Fundamental Daily Forecast – Drop Sharply as Fed Delivers Not So Dovish Message

The Australian and New Zealand Dollars plunged on Wednesday following the release of the U.S. Federal Reserve interest rate and monetary policy decisions. The Fed raised its benchmark rate 25-basis points as expected while lowering its median rate forecast to two hikes from three next year. However, the central bank also retained language in its statement that the market saw as more aggressive than expected, in terms of future rate hikes, and this is what spooked Aussie and Kiwi investors.

What really scared Australian and New Zealand Dollar traders was that Fed Chairman Jerome Powell said the Fed was satisfied with its program to reduce the balance sheet and it has no plan to change it. Aussie and Kiwi traders see that as another tightening path, since the Fed is reducing the balance sheet by making fewer purchases as Treasury and mortgage securities it holds mature.

Essentially, Aussie and Kiwi traders were braced for a very dovish Fed and they were burned. While investors were looking for the Fed to take alter its monetary policy statement substantially, it left in the phase that it would see “further gradual” rate hikes, and changed it only by adding the word “some.”

Australian and New Zealand Dollar investors had expected the language to be removed from the monetary policy statement and replaced by an indication that the central bank would be more dependent on economic data. Instead, what’s pretty clear from the statement is the Federal Open Market Committee led by Fed Chair Jerome Powell is not poised to turn sharply dovish.

Forecast

With the Australian and New Zealand Dollars set to finish near their lows of the session, bullish traders have little time to lick their wounds and assess their losses as they prepare for the release of the New Zealand GDP and Trade Balance Reports. GDP is expected to have risen 0.6% and the Trade Balance is expected to have improved from -1295M to -880M.

In Australia, traders will have the opportunity to react to the latest data on Employment Change and the Unemployment Rate. The Employment Change report is expected to show the economy added 20.0K new jobs in November. The Unemployment Rate is expected to remain at 5.0%.