What happened
The US Federal Reserve's Federal Open Market Committee voted unanimously to raise interest rates by 25 basis points to 4.00 per cent. Policymakers indicated at least one more rate increase is expected this year, with 16 of 18 officials anticipating further tightening. US share markets dropped on the decision, while the Australian dollar traded around 71.17 US cents.
Why it matters here
High US interest rates exert pressure on the Reserve Bank of Australia to maintain a hawkish stance to defend the local currency and control domestic inflation. For Australian investors, higher official interest rates increase home loan costs and corporate borrowing expenses, while improving yields on cash deposits. This shifts the relative attractiveness between growth equities and defensive asset classes.
What to watch
The Reserve Bank of Australia's upcoming monetary policy meeting on September 29, where board members will assess domestic inflation and economic data against international central bank actions.
Source
abc.net.au