Forecast for the AUD: Bearish

• The US Dollar still has control over the Australian Dollar.

• Inflation targeting monetary policy works, but some observers still need to remember that.

• After the RBA, it is the Fed’s time to act. Does it increase AUD/USD?

During the first few days of the week, the Australian Dollar fell before settling over the weekend and rising above 68 cents.

The RBA rate decision had little effect on the currency, but this week’s Federal Reserve decision may have a greater influence.

The US Dollar rocketed higher as solid US data reminded investors that the Fed could still need to do some major lifting to keep inflation under control, which led to the first sell-off in AUD/USD.

The RBA increased interest rates by 25 basis points on Tuesday, but the market hardly noticed the change since it was widely anticipated. This raises the overall monetary policy tightening for this cycle since May to 300 basis points (bps).

The statement that went along with it maintained the bank’s direction for a while. It is difficult to get a job, the economy is expanding, inflation is expected to peak at 8% before declining, and a wage-price spiral must be prevented.

Recently, the central bank has come under fire in the mainstream media, with some pundits seeming to overlook the harm that rapid and erratic price hikes can do to an economy.

Unchecked inflation can erode wealth for decades rather than just a year or two, while their audience is already experiencing the burden of rising mortgage repayments.

When the RBA said, “High inflation hurts our economy and makes life more difficult for individuals,” they veiled alluded to this.

The rush to populist and sensationalist criticism seems to have obscured the economic benefits of a legislated inflation-targeted monetary policy framework for Australian society. Some politicians and economists need to reevaluate their understanding of macroeconomics.

They wouldn’t make the claims they are if they were aware of certain fundamental concepts. Making the wise choices that must be taken today to manage inflation requires courage and insight; it is easy to stand by while rates are falling.

It is profoundly wrong for many Australians to believe that home values must constantly rise. Productivity increases are the sole source of real economic advantages. The moment has come for the grownups in the room to speak out.

The Federal Open Market Committee (FOMC) will decide the target cash rate early on Friday morning, Australian Eastern Standard Time (AEST). Most people foresee a 50 bp increase.

The following remarks from Fed Chair Powell will be closely examined for the future rate path and may determine the direction of the Australian Dollar.

When comparing the Fed to the RBA, one cannot help but wonder whether the local cash rate would be higher now if the RBA weren’t under so much domestic pressure.

CHART FOR AUD/USD