AUD/USD refreshes eight-month high near 0.6840 as market digests Fed’s dovish policy

• AUD/USD surges to near 0.6840 in the aftermath of the Fed’s policy announcement.
• The Fed cut its key borrowing rates by 50 bps to 4.75-5.00%.
• Australian Employment data for August came in better than expected.

The AUD/USD pair posts a fresh eight-month high near 0.6840 in Thursday’s European session. The Aussie asset strengthens as the US Dollar (USD) retreats in the aftermath of the Federal Reserve’s (Fed) monetary policy announcement.

The Fed delivered its first interest rate cut decision in more than four years in which it reduced borrowing rates by 50 basis points (bps) to 4.75%-5.00%. Market participants were certain that the Fed would pivot to policy normalization but were split over the likely interest rate cut size.

Historically. Fed’s dovish interest rate decisions result in a sharp increase in foreign flows to emerging markets and risk-perceived currencies. The market sentiment is upbeat due to the Fed’s bumper interest rate cut. S&P 500 futures have posted significant gains in the European session. The US Dollar Index (DXY), which tracks the Greenback’s value against its major peers, falls back from the weekly high of 101.50 to near 100.60.

Meanwhile, policymakers see the federal fund rate heading to 4.4% by year-end, suggesting that there will be another 50-bps decline in key borrowing rates. On the contrary, the CME FedWatch tool shows that the central bank will cut 75 bps in the remaining monetary policies this year.

On the Aussie front, upbeat Australian Employment data for August has strengthened the Australian Dollar (AUD). The report showed that Australian employers hired 47.5K fresh workers, higher than estimates of 25K but almost similar to the prior release of 48.9K, downwardly revised from 58.2K. The Unemployment Rate remains steady at 4.2%, as expected.