Australian Dollar falls against US Dollar after hawkish Fed rate hike

• AUD/USD drops nearly 20 pips in the immediate reaction to the Fed decision.
• The Fed raises rates by 25 basis points and signals that more tightening is likely.
• The US Dollar Index extends its advance toward the psychological 100.00 mark.

AUD/USD extends losses on Wednesday after the Federal Reserve (Fed) raises interest rates and releases a hawkish set of policy projections. The pair slides nearly 20 pips in the immediate reaction and trades around 0.7113 at the time of writing.

The Fed raises the federal funds target range by 25 basis points to 3.75%-4.00% in a unanimous 12-0 decision, marking its first rate increase since July 2023. The US Dollar Index (DXY) extends its gains toward the psychological 100.00 mark following the announcement.

The updated dot plot shows that 16 of 18 Fed officials expect at least one more rate hike this year. Twelve policymakers project one additional quarter-point increase, four expect two more hikes and two see no further moves.

The median year-end rate projection rises to 4.1% from 3.8% in June. The 2027 projection also climbs to 4.1% from 3.6%. The Fed raised its 2026 GDP growth forecast to 2.3% from 2.2% in June and lifted its headline PCE inflation projection to 3.7% from 3.6%. The core PCE inflation forecast also increases to 3.4% from 3.3%, while the Unemployment Rate projection falls to 4.1% from 4.3%.

However, the downside reaction appears limited as the quarter-point rate hike was already largely priced in. Traders now await Fed Chairman Kevin Warsh’s press conference for more clues about the future policy path.