The Australian dollar was by no means incubated from the carnage on the share market – down around 2% due to major falls on US indices overnight (between 2.6% and 3.6%) - with the local currency hitting a 24-month low of US62.26 cents.
What sent the Aussie dollar on a downward spiral was the Federal Reserve’s (Fed) soft softy rhetoric around future interest rate cuts which saw the US dollar storm higher. With pesky inflation still on the horizon, the Fed has warned the market that interest rate cuts will not be coming thick and fast in 2025.
The first cut is now not fully priced until September 2025. In short, the Fed Funds pricing now has a cumulative 34 basis points (bps) of cuts for 2025, down from 47bps before announcement on Wednesday (Thursday AEDT).
Based on reduced dot plot “guidance” there will only be two rate cuts by the Fed next year. The Fed’s median Core PCE (personal consumption expenditure) forecast – a key measure of consumer spending and inflation in the US - is expected to be 2.5% in 2025 (up from 2.2%) and the unemployment forecast is 4.3% for 2025 (down from 4.4%).
Fed Chairman Jerome Powell noted that the world’s largest economy was in a “really good starting place” with a 2.5% growth rate this year and inflation that had halved to 2.6 %. However, US policymakers are not betting the rent money on inflation continuing to ease once President-elect Donald Trump returns to the oval office in January.
Following today’s routing the Australian dollar is down around 9% for the year which now puts it within cooee of the biggest fall in six years.
Unsurprisingly, last night’s share market falls in the US – which saw the VIX volatility Index surge 17.75 points to 27.62 - sent bond markets higher, with the US 10-year yield hitting 4.50% while two-year bonds were up 11.4bps to 4.35%.
Here in Australia, the three-year bond yield slipped to 3.9%.
Not unlike the US overnight, all 11 ASX sectors tracked south today, with profit takers heading to the exit, taking energy, financials, materials, utilities and IT down over 2%.
An hour out from the close today the worst performers on the ASX today were Hub24 (ASX: HUB), James Hardie (ASX: JHX), Block (ASX: SQ2), Pinnacle (ASX: PNI), Zip (ASX: ZIP), Westgold Resources (ASX: WGX), Megaport (ASX: MP1) and Deep Yellow (ASX: DYL).
Meantime, among today’s top gainers were Credit Corp (ASX: CCP), Patriot Battery Metals (ASX: PMT), Mesoblast (ASX: MSB) and Energy Resources Australia (ASX: ERA).