The local currency plunged to a more than two-year low against its US counterpart on Thursday, while the Australian Securities Exchange's benchmark index suffered its biggest single-day drop since early August.
The S&P/ASX200 index finished down 141.2 points, or 1.7 per cent, to 8,168.2, while the broader All Ordinaries dropped 143.6 points, or 1.68 per cent, to 8,415.0.
The little Aussie battler, meanwhile, was buying 62.21 US cents, down from 63.13 US cents at the local stock market close on Wednesday.
The currency has dropped nearly 10 per cent in the 80 days since it hit a one-and-a-half-year peak of 69.13 US cents on September 30. Other than a few days in October 2022, the Aussie hasn't been this low since the early days of the COVID-19 pandemic.
The losses came after the US Federal Reserve, after cutting US interest rates as expected, announced early Thursday that its rate-setting committee expected just two rate cuts in 2025 - half the number previously forecast.
"As we think about further cuts, we're going to be looking for progress on inflation," Fed chairman Jerome Powell said.
Chair Powell answers reporters' questions at the FOMC press conference on December 18, 2024. — Federal Reserve (@federalreserve) https://t.co/siWde1ROZb pic.twitter.com/n4PqHkd1cDDecember 18, 2024
"We have been moving sideways on 12-month inflation."
On Wall Street, the S&P500 fell 3.0 per cent and the Nasdaq dropped 3.6 per cent, while the US dollar rose to a more than two-year high against a basket of other currencies.
Capital.com analyst Kyle Rodda said that Mr Powell's pivot back to price stability risks prompted financial markets to rapidly unwind expectations on further cuts next year, pushing yields and the US dollar higher and tightening financial conditions meaningfully across the globe.
Across the Ditch on Thursday, Statistics New Zealand also shocked with the news about the economy, releasing gross domestic product figures indicating that Australia's neighbour across the Tasman is in a deep recession.
Every sector of the Australian stock exchange finished in the red on Thursday, with tech the worst performer, dropping 2.5 per cent.
In the financial sector, the big four banks were all down sharply, with ANZ dropping 2.6 per cent to $28.61, Westpac retreating 2.4 per cent to $32.05, NAB dipping 2.1 per cent to $37.20 and CBA falling 2.3 per cent to $155.99.
In the mining sector, BHP fell 1.5 per cent to $39.68, Fortescue retreated 3.9 per cent to $17.85 and Rio Tinto declined 0.9 per cent to $117.40.
Deep Yellow was the worst performer in the ASX200, falling 2.1 per cent to a three-month low of $1.055 after the company announced it would postpone for a few months a final decision on developing a uranium mine in Namibia.
On the flip side, Mesoblast soared 54.0 per cent to a nearly four-year high of $3.05 after its stem cell treatment for children suffering from graft versus host disease - a complication from bone marrow transplants - was finally approved by the US Food and Drug Administration after years of delay.
ON THE ASX:
* The benchmark S&P/ASX200 index on Thursday dropped 141.2 points, or 1.7 per cent, at 8,168.2
* The broader All Ordinaries fell 143.6 points, or 1.68 per cent, to 8,415.0.
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 62.20 US cents, from 63.13 US cents at Wednesday's ASX close
* 96.63 Japanese yen, from 96.84 Japanese yen
* 59.93 euro cents, from 60.11 euro cents
* 49.42 British pence, from 49.70 pence
* 110.57 NZ cents, from 109.98 NZ cents
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