Downward Pressure In Lead Up To Fed

Weaker risk appetite weighed on the AUDUSD overnight as it went through 0.67 again and is now trading at 0.6688. Ahead of today’s Fed meeting, the USD strengthened to close to its recent high as bond yields rose. As a result, the G10 (ex Switzerland) were all weaker versus the USD and the AUD was mid field.

• With the break below 0.67, AUDUSD is now trading close to its initial support level of 0.667 (Sep 16 low). A hawkish Fed could weigh on the AUD further and signal a resumption of the downtrend.
• The AUDNZD uptrend continued overnight with the cross reaching a high of 1.1365, as Kiwi 2-year swaps moderated. After breaching the September 2015 high of 1.1364, it moved back down and is now trading around 1.134.
• The risk-off move drove equity markets lower overnight with the US down about a percent and the VIX up around 1.5pp from its low yesterday to 27.15%. Commodities followed with Brent crude down 1.5%. But copper was steady. Iron ore fell further to around $95.
• The focus of today will be the Fed meeting and it is broadly expected to hike 75bp. In Australia, RBA Deputy Governor Bullock speaks today on the “Review of the Bond Purchase Program” at 1200AEST. Westpac leading index for August is released.