- AUD / USD fell sharply after hitting new multi-month highs.
- The US dollar index appears to close above 93.00 with modest daily gains.
- FOMC Chairman Powell introduced the average inflation target as a new strategy.
AUD / USD fluctuated in a wide range on Thursday and is now looking to close the third day in a row in positive territory. At the time of writing, the pair was up 0.35% on the day to 0.7255.
Investors assess changes in Fed policy strategy
The wild swings seen in the US Dollar Index (DXY) caused the AUD / USD to move sharply in both directions. The initial reaction to FOMC President Powell’s speech at the Jackson Hole Symposium drove the DXY to a low of 92.42.
However, the surge in yields on US Treasuries during the US session gave the USD a boost and allowed the DXY to jump above 93.30. With market action turning subdued over the past hour, DXY remains on track to end the day with modest gains above 93.00.
Powell announced that the Fed would adopt a medium inflation target as part of its new policy strategy and sparked a sell off of the USD. The president further clarified that any overrun in inflation would be moderate and helped US bond yields gain ground. Commenting on the announcement, Dallas Fed Chairman Robert Kaplan explained that a “moderate overshoot” in inflation means 2.25% or 2.5%. For now, the yield on 10-year US T bonds is up 7.1% on the day to 0.736%.
Meanwhile, the second estimate from the United States Bureau of Economic Analysis showed that real gross domestic product (GDP) in the United States contracted by 31.7%, from the original forecast of 32, 9%.
There will be no release of significant macroeconomic data from Australia during the Asian session and the market valuation of the USD will likely remain the main driver of AUD / USD action.