• The US Federal Reserve hiked rates by 50 bps, and the AUD/USD tumbled from around 0.6880s toward its day’s lows.
• Federal Reserve policymakers expect the Federal Funds rates to peak around 5.1%.
• AUD/USD: Break below 0.6800 can exacerbate a fall toward the 20-DM; otherwise, a rally above 0.6900 is on the cards.

The AUD/USD dropped from daily highs nearby 0.6900, toward its daily lows of 0.6820, following the US Federal Reserve (Fed) monetary policy decision on Wednesday, with Jerome Powell and Co., raising rates by 50 bps, as most analysts expected. However, the monetary policy statement remained unchanged from November’s. Therefore, the AUD/USD is trading volatile, around 0.6800/20, at the time of writing.

Summary of the Fed’s decision

The Federal Reserve Open Market Committee (FOMC) made the widely anticipated decision to raise the Federal Funds rate (FFR) toward 4.25-4.50%. The US central bank decision was spurred by a tight labor market and inflation reflecting various supply and demand imbalances due to the pandemic, higher food and energy prices, and broader price pressures. Officials noted that further increases in policy are needed for inflation to return back over to the 2% target and stated that “cumulative tightening of monetary policy,” inflation, and economic and financial developments, to achieve the Fed’s target.

According to the Summary of Economic Projections, Federal officials predict a “terminal” rate average near 5.10%, with GDP anticipations at 0.5% for both 2022 and 2023; inflation is expected to reach 3.5% by 2023 before declining further in future years down toward the 2% US central bank, target.

Source: Federal Reserve

AUD/USD 5-minute Chart

The AUD/USD tumbled from around 0.6875 toward its daily low of 0.6818 on the release of the monetary policy statement, though it had erased some of its losses, but remains volatile as the Federal Reserve Chair Jerome Powell takes the stance.

A fall below 0.6800 could pave the way toward the 20-day Exponential Moving Average (EMA) at 0.6726. On the upside, a rally above 0.6900 could be expected if Powell turns more dovish as expected.

AUD/USD Key Technical Levels