Aussie Dollar Take a Beating Ahead of FOMC meeting

The Aussie dollar sunk to a 20 month low of 57.2 cents overnight as the US dollar strengthened in anticipation of a full 50 basis point rise, which will be decided when the Federal Open Markets Committee (FOMC) meets tonight (Australian time).

If as most forecasters predict, the US does raise rates by 50 basis points, it will leave the Reserve Bank of Australia with a dilemma; do they try to play catch up and lift domestic rates to protect the Australian currency at the risk of pushing the economy into recession.

With Budget projections for growth for the next financial year being questioned by some in the market, the Reserve Bank may not want to risk damaging the local economy by following the Fed's lead.