Aussie dollar slumps as Fed tempers rate cut expectations

The news: The Australian dollar has fallen to its lowest level in over a month after a US Federal Reserve official tempered hopes of rapid rate cuts overnight. Fed governor Christopher Waller said US inflation was on track towards the 2% level, but that careful policy would be required to keep it there. Waller also noted that an upcoming seasonal update to US inflation data could erase some of the price growth improvements highlighted in preliminary data.

The numbers: The Aussie dollar is trading roughly half a percent lower since the Australian session close, and is buying 65.8 US cents. The DXY index, which measures the strength of the US dollar against a basket of major currencies, swung its highest level since mid-December but has eased slightly to to 103.34.

The context: Australia's Reserve Bank has been relatively hawkish in comparison to the Fed, hiking rates in early November as the US central bank heralded the end of its hiking cycle. The divergence has lifted the Aussie dollar relative to the greenback in the last two months of 2023, but the Fed's about-face last night reversed some of those gains.

What they said: "When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully," Waller said in his speech.