AUD/USD could see volatility in major week for central banks

Monday sees the start of an important week for AUD/USD in which both the Reserve Bank of Australia (RBA) and the US Federal Reserve (Fed) are scheduled to hold policy meetings, with significant implications for the exchange rate. 

The RBA will announce the outcome of its meeting on Tuesday at 03:30 GMT. Although inflation in Australia has made good progress – falling from 5.4% to 4.1% in February –  it is still far from the RBA’s target and no change in the cash rate is expected. There is a chance, however, that the bank may remove wording about the need for a further interest rate hike from the accompanying statement, according to analysts at Commerzbank, which could benefit the Australian Dollar (and AUD/USD). 

The Fed is set to announce its decision at 18:00 on Wednesday, and likewise no change in the Fed Funds Rate is predicted. Recent stickier-than-expected inflation, however, suggests the possibility the Fed’s Summary of Economic Projections (SEP) may change how many interest-rate cuts members foresee in 2024. 

In the last SEP in December, policymakers expected there to be three 0.25% cuts in 2024, however, analysts at Bloomberg expect a possibility that could fall to two in the new dot plot. Such a change would be bullish for USD (negative for AUD/USD).