- The Australian Dollar trims recent losses amid rising likelihood of a Fed rate cut in September.
- The Reserve Bank of Australia is expected to resume easing with a larger 50 basis-point rate cut in November.
- The CME FedWatch Tool indicates an 87% chance of a 25 basis-point rate cut in the next meeting.
The Australian Dollar (AUD) moves little against the US Dollar (USD) on Monday after registering more than 1% gains in the previous session. The AUD/USD pair gained ground as the US Dollar depreciated amid the rising likelihood of a Federal Reserve (Fed) interest rate cut in September.
Fed Chair Jerome Powell said at the Jackson Hole symposium on Friday that risks to the job market were rising, but also noted inflation remained a threat and that a decision wasn’t set in stone. Powell also stated that the Fed still believes it may not need to tighten policy solely based on uncertain estimates that employment may be beyond its maximum sustainable level.
Traders anticipate the Reserve Bank of Australia (RBA) to remain cautious after last week’s rate cut. However, investors anticipate that the central bank may resume easing with a larger 50 basis-point rate cut, likely in November.
Australian Dollar steadies as US Dollar recovers recent losses
- The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is gaining ground and trading around 97.90 at the time of writing. Traders will likely await the upcoming release of the Q2 US Gross Domestic Product Annualized and July Personal Consumption Expenditures – Price Index data, the Fed’s preferred inflation gauge.
- According to the CME FedWatch tool, traders are now pricing in an 87% odds of a 25 basis points (bps) rate cut in September, up from 75% before the speech.
- The US Initial Jobless Claims rose to 235K for the previous week, an eight-week high and above the consensus estimate of 225K, suggesting some softening in labor market conditions.
- Strong PMI data paired with rising jobless claims highlights the Federal Reserve’s challenge of weighing persistent inflation pressures against evidence of a softening labor market. According to the CME FedWatch tool, Fed funds futures traders are now pricing in a 74% chance of a rate reduction in September, down from 82% on Wednesday.
- Chicago Fed President Austan Goolsbee said on Thursday that September’s Fed meeting remains open for action. Goolsbee further stated that the Federal Reserve has been receiving mixed signals on the economy. Boston Fed President Susan Collins signaled openness to a rate cut as soon as September, citing tariff headwinds and potential labor market softness, even as near-term inflation risks persist.
- The preliminary S&P Global US Composite PMI picked up pace in August, with the index at 55.4 versus 55.1 prior. Meanwhile, the US Manufacturing PMI rose to 53.3 from 49.8 prior, surpassing the market consensus of 49.5. Services PMI eased to 55.4 from 55.7 previous reading, but was stronger than the 54.2 expected.
Australian Dollar tests confluence resistance zone around 0.6500
The AUD/USD pair is trading around 0.6480 on Monday. The technical analysis of the daily chart indicates that the pair is attempting to break above the descending channel pattern, suggesting a potential shift to bullish from bearish bias.
The initial barrier appears at the 50-day Exponential Moving Average (EMA) of 0.6491, aligned with the upper boundary of the descending channel around 0.6500. A successful break above this crucial resistance zone could cause the emergence of the bullish bias and support the AUD/USD pair to approach the monthly high at 0.6568, reached on August 14, followed by the nine-month high of 0.6625, which was recorded on July 24.
On the downside, the AUD/USD pair may find immediate support at the nine-day EMA of 0.6477. A break below this level would weaken the short-term price momentum and put downward pressure on the pair to target the two-month low of 0.6414, recorded on August 21, followed by the three-month low of 0.6372, reached on June 23.
AUD/USD: Daily Chart
Australian Dollar Price Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.17% | 0.06% | 0.32% | 0.07% | -0.01% | -0.02% | 0.21% | |
| EUR | -0.17% | -0.12% | 0.09% | -0.10% | -0.11% | -0.19% | 0.05% | |
| GBP | -0.06% | 0.12% | 0.06% | 0.01% | -0.06% | -0.08% | 0.15% | |
| JPY | -0.32% | -0.09% | -0.06% | -0.18% | -0.29% | -0.26% | 0.02% | |
| CAD | -0.07% | 0.10% | -0.01% | 0.18% | -0.06% | -0.05% | 0.14% | |
| AUD | 0.00% | 0.11% | 0.06% | 0.29% | 0.06% | -0.03% | 0.21% | |
| NZD | 0.02% | 0.19% | 0.08% | 0.26% | 0.05% | 0.03% | 0.23% | |
| CHF | -0.21% | -0.05% | -0.15% | -0.02% | -0.14% | -0.21% | -0.23% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
Source: https://www.fxstreet.com/news/australian-dollar-slips-as-us-dollar-advances-despite-fed-rate-cut-bets-rise-202508250400