Australian, NZ dollars on edge as markets weigh Fed scenarios

According to Business Recorder, the Australian and New Zealand dollars weakened against a generally stronger greenback on Wednesday, as traders grappled with the uncertain outcome of an upcoming Federal Reserve gathering. Markets are pricing in a 92% probability of a quarter-point increase in interest rates. Analysts believe the central bank must act to preserve its credibility in fighting inflation.

The Aussie was held near $0.7125 after shedding 0.1% overnight, and traders are focused on whether Fed officials will signal further hikes and whether Chair Kevin Warsh offers direction on that. Pepperstone's Chris Weston warned that the Fed announcements could set off violent swings within a couple of hours. Investors now price in at least three increases by early next year, leaving the greenback exposed if Warsh sounds less hawkish than expected.

The kiwi slipped to a two-month low of $0.5740, extending its losses to seven declines in eight sessions, while the Aussie reached a 13-year high against the kiwi at NZ$1.2392. Markets put an 85% chance on the Reserve Bank of Australia lifting its current 4.35% rate, with a 25 basis point step at its September 29 meeting. Separately, the RBNZ said Assistant Governor Karen Silk will depart the central bank in December and she had been viewed as leaning hawkish.