Dollar Volatility Looms as Fed Meeting Approaches

The Australian and New Zealand dollars are on edge as investors struggle to price the risks from the upcoming Federal Reserve meeting. Markets imply a 92% chance of a quarter-point rate rise, with analysts assuming the Fed will deliver to safeguard its anti-inflation credibility.

Chris Weston, head of research at Pepperstone, noted that 'Warsh has deliberately injected a significant distribution into the potential policy outcomes, and markets could experience a fairly wild hour or two as traders react to the statement, the new dot plot, the Fed's economic projections and Warsh's press conference.'

The Australian dollar is pressured at $0.7125, having eased 0.1% overnight, while the kiwi dollar sagged to a two-month trough of $0.5740 after losing another 0.3% overnight.

The Reserve Bank of Australia and Reserve Bank of New Zealand are also in focus, with markets implying an 85% chance of a rate rise by the RBA and predicting the RBNZ will raise its cash rate to 3.0% by December and to 3.75% by the middle of next year.