AUD/USD remains close to year lows after RBNZ rise and dovish US FOMC Minutes.

• AUD/USD remains under lower pressure as Fed Minutes reveal uncertain future for rate hikes.
• While some Fed officials believe the May meeting’s 25 basis point rate hike could be the last, others warn of the need for flexibility in future meetings.
• Although rate cuts seem unlikely in the short term, policymakers stress the need to remain open to rate hikes if necessary, emphasizing transparency in communication.

The AUD/USD pair extended its slide after hitting a new year-to-date low (0.6529). Downside pressure continues, as the Federal Reserve’s Open Market Committee (FOMC) released its May Minutes, which showed an uncertain scenario for further rate hikes. This suggests that the US central bank is open to keeping rates unchanged if necessary. At the time of writing, the AUD/USD pair was trading at 0.6542.

FOMC May Minutes Show Fed Officials Uncertain About Future Rate Hikes

The recently released minutes of the May Federal Reserve meeting shed light on the uncertainty among policymakers. Although some officials approved a 25 basis point rate hike, they stressed that this could be the last. On the other hand, several political leaders warned that flexibility should be maintained in the next meetings.

The officials expressed their belief that if the economy continues to progress “in line with its current outlook”, further tightening of monetary policy may not be necessary beyond the present meeting.

The Federal Reserve staff presented projections indicating a mild recession towards the end of the year. They highlighted the evidence that the cumulative effect of past tightening measures has started to have an impact on the economy. In particular, “almost all participants” expressed concern about risks to economic growth as bank credit conditions tighten.

During the meeting, participants generally agreed that rate cuts were unlikely in the near term. However, they stressed the need to remain open to the possibility of rate hikes if circumstances warrant. In this regard, the importance of transparently communicating to the public the Fed’s data-driven approach was stressed. The Federal Reserve intends to maintain flexibility to respond to changing economic conditions by taking a meeting-by-meeting approach after the May meeting.

AUD/USD Reaction to FOMC Minutes

The AUD/USD reaction was subdued, following the path of the NZD/USD pair, following the Reserve Bank of New Zealand’s (RBNZ) moderate rate hike. Therefore, the AUD/USD collided with the S3 daily pivot before reversing its bearish trajectory, and is now heading towards the 0.6550 zone. However, AUD/USD continues to trade at a loss, with upside risks at the S2 pivot point at 0.6570, before testing the 0.6600 figure. Conversely, a bearish continuation could open the door for further losses, below the 0.6529 low, as well as 0.6500.