Australian Dollar Hits 24-Month Low Following US Rate Cut

The Australian dollar has dropped below 62.4 US cents, reaching its lowest level since October 2022.

This decline follows a decision by the US Federal Reserve to cut interest rates by 0.25 percentage points. However, the Fed also indicated a cautious approach to future rate cuts, forecasting that inflation will remain elevated for a more extended period.

Market Overview

As we analyze today’s market activities, a few key indicators suggest a downward trend. ASX futures have fallen by 1.2%, pointing at a challenging trading day ahead.

• ASX futures: -1.2% to 8,225 points
• ASX 200 (Wednesday close): -0.1% to 8,309 points
• Australian dollar: -1.7% at 62.3 US cents
• Wall Street: Dow Jones (-1.3%), S&P 500 (-1.8%), Nasdaq (-2.4%)
• Europe: FTSE (+0.1%), DAX (unchanged), Stoxx 600 (+0.2%)
• Spot gold: -1.8% to $US2,599/ounce
• Brent crude: -0.2% to $US73.06/barrel
• Iron ore: -2.1% to $US102.40/tonne
• Bitcoin: -4.2% to $US101,890

Prices are current around 7:30am AEDT.

Details of the US Rate Cut

This morning, the US Federal Reserve lowered its benchmark interest rate by 0.25 percentage points, marking its third rate cut this year. The federal funds rate is now targeted between 4.25% and 4.5%, returning to levels seen in December 2022. However, the Federal Reserve chairman, Jerome Powell, indicated that future rate cuts will be fewer than previously suggested, with only two more anticipated in 2025. This announcement came as a surprise since the Fed had earlier hinted at four rate cuts for the following year.

Jerome Powell, in a press briefing post-meeting, stated, "With today's action, we have lowered our policy rate by a full percentage point from its peak, and our policy stance is now significantly less restrictive. We can therefore be more cautious as we consider adjustments to our policy rate." He added that inflation levels are expected to remain higher than previously anticipated.

Aussie Dollar’s Decline

A closer look at the Australian dollar shows a significant decline, now marked at 62.2 US cents. This compares to its value of 63.1 US cents just a day before, representing a steep drop of 1.7%. This latest valuation recalls October 2022 when inflation rates peaked at around 7%.

Global Market Reactions

The Fed's decision sent shockwaves through global markets. Wall Street experienced significant losses, with the Dow Jones Industrial Average falling by 1.3%. This marks the longest losing streak for the Dow since 1974, having decreased for ten consecutive days. The S&P 500 and Nasdaq saw declines of 1.5% and 2.1%, respectively, reflecting a broader bearish sentiment.

As for commodities, spot gold prices are expected to dip due to a strengthening US dollar. Additionally, Brent crude futures showed a small decrease, and iron ore prices fell, which could impact Australian mining stocks as trading begins today.

Overall, the Australian dollar's weakness and the Fed's cautious outlook could mean a turbulent time for both local markets and the economy as a whole.

currency, markets, economy