Forex Market: AUD/USD slides as FOMC indicates an increase in rates in 2015

Australian dollar slid against its US counterpart on trading Thursday, following Federal Reserves policy meeting, where it was indicated that a possible raise in interest rates may occur by the middle of 2015.

AUD/USD fell to a daily low at 0.9002 at 1:28 GMT. At 7:57 GMT the pair was losing 0.15% for the day to trade at 0.9026. Support was likely to be received at March 14th low, 0.8997, while resistance was to be met at March 17th high, 0.9098.

At its meeting on policy yesterday the Federal Open Market Committee (FOMC) decided to pare back its monthly monetary stimulus by another 10 billion USD to 55 billion USD, while stating that asset purchases will be reduced by “further measured steps.” The Committee also dropped the unemployment rate threshold for considering when to raise interest rates, making a transition to a wider set of data.

At a press conference after her first meeting as Federal Reserve Chair, Janet Yellen said there might be a “considerable time” between the end of the stimulus program and the first increase in borrowing costs, meaning “around six months or that type of thing”.

According to Fed policy makers the benchmark interest rate target will be 1% at the end of 2015 and 2.25% in 2016. This has been a revision up compared to what was suggested in December, when central bank officials projected rates of 0.75% and 1.75% for the two respective periods. Borrowing costs have been kept at 0 to 0.25% since December 2008.

“The outlook for the pace of policy tightening is faster than markets have priced in,” said Yuki Sakasai, a currency strategist in New York at Barclays Plc, cited by Bloomberg News. “The Fed’s announcement confirms our view that the rising-dollar trend will accelerate in the six-month to one-year term.”

The view of interest rates increasing trimmed demand for high-yielding assets, such as the Aussie.

The MSCI Asia Pacific Index of stocks dropped 1.9% today.

Meanwhile, the Australian currency was lower against the euro, with EUR/AUD cross up 0.14% on a daily basis to trade at 1.5321 at 8:31 GMT.

AUD/NZD was gaining 0.08% to trade at 1.0569 at 8:33 GMT. The pair earlier touched a daily high at 1.0586. New Zealands Gross Domestic Product expanded 3.1% during the fourth quarter of 2013 compared to the same period a year ago, Statistics New Zealand reported earlier today. This pace appeared slower than the revised 3.3% growth during the third quarter last year.

On March 13th Reserve Bank of New Zealand raised its benchmark interest rate by 0.25% to 2.75%, citing that economic expansion had “considerable momentum”, supported by rising export prices, the strongest immigration in a decade and the 40 billion NZD (34 billion USD) rebuild costs of Christchurch, after it had been hit by an earthquake.