AUD/USD Soars Near 0.6750 Amid Fed Rate Cut Speculations
- US Fed Official Expresses Support for 50 bps Rate Cut
- Investors Anticipate Steady Australian Jobless Rate at 4.2%
In today’s European session, the AUD/USD pair experiences a significant surge, reaching close to 0.6750. This rise in the Australian Dollar comes at the expense of the US Dollar, which is facing notable selling pressure. Investors are closely monitoring the upcoming Federal Reserve (Fed) monetary policy meeting scheduled for Wednesday. As a result, the US Dollar Index (DXY) drops below 100.70.
Fed’s Interest Rate Cut Expectations
The Fed is expected to initiate interest rate cuts, but the market remains divided on the magnitude of the cut. Recent softer-than-expected US Producer Price Index (PPI) data for August, coupled with concerns about a slowdown in the labor market, have led to speculations of a 50 basis points (bps) rate reduction, bringing rates to 4.75%-5.00%. According to the CME FedWatch tool, the probability of a 50 bps rate cut has surged to 57% from 30% in the past week.
The likelihood of a substantial rate cut was further reinforced by comments from Jon Faust, a senior adviser to Fed Chairman Jerome Powell, who suggested a 50 bps cut to kickstart the policy-easing cycle. This stance diverges from the expectations of some officials who anticipated a smaller cut in November or December, emphasizing that current rates are far from their optimal levels.
Australian Dollar’s Employment Data Influence
Meanwhile, in Australia, the Australian Dollar’s performance will be impacted by the release of Employment data for August on Thursday. The Unemployment Rate is forecasted to remain stable at 4.2%, with new payrolls expected to decrease to 25.5K from the previous 58.2K.
Australian Dollar FAQs
Factors Influencing the Australian Dollar (AUD)
Interest Rates
The level of interest rates set by the Reserve Bank of Australia (RBA) plays a significant role in determining the value of the AUD. Additionally, factors such as the price of Australia’s major export, Iron Ore, the health of the Chinese economy, inflation rates, growth rate, and Trade Balance also influence the AUD.
RBA Policy
The RBA influences the AUD by adjusting interest rates to maintain stable inflation rates. High interest rates compared to other central banks support the AUD, while quantitative easing or tightening can impact its value.
Chinese Economy
Australia’s trade relationship with China significantly affects the AUD. The health of the Chinese economy impacts demand for Australian exports, particularly in raw materials, influencing the value of the AUD.
Iron Ore Prices
As Australia’s largest export, Iron Ore prices directly impact the AUD. Rising Iron Ore prices typically strengthen the AUD, while lower prices have the opposite effect.
Trade Balance
The Trade Balance, reflecting export and import differentials, can strengthen or weaken the AUD based on the surplus or deficit in trade activities.
Analysis:
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