- AUD/USD recovers marginally after the recent steep sell-off.
- Both the Fed and RBA are expected to delay cutting interest rates now.
- This means the interest rate differential, a key driver of FX, is unlikely to widen as much as in other pairs.
AUD/USD climbs about a tenth of a percent into the 0.6440s on Thursday, continuing the correction of the steep sell-off in the pair at the start of April.
As can be seen from the chart below, an overall bearish tone dominates price action after the new year-to-date low made on Tuesday at 0.6389.
AUD/USD Daily Chart
The most recent leg down, which started on April 10, was driven by a sudden strengthening in the US Dollar (USD).
A run of strong macroeconomic data from the US, a solid labor market and persistently high inflation means the US Federal Reserve (Fed) cannot go ahead and cut interest rates as soon as it had been planning.
The expectation of interest rates remaining higher for longer in the US in order to continue cooling down the economy, has supported the US Dollar because higher interest rates attract greater inflows of foreign capital.
The sell-off in AUD/USD was not as steep as in other Dollar pairs, however, because stubbornly high inflation in Australia means the Reserve Bank of Australia (RBA) is also expected to delay cutting interest rates. It was less vocal about cutting them at the start of the year, however, unlike the Federal Reserve (Fed).
In Australia, a similar delay means the Reserve Bank of Australia (RBA) is now not expected to lower the 4.35% overnight cash rate until November 2024.
“Markets currently price the RBA cash rate to be unchanged at the next meeting on 7 May, with a 60% chance of a cut by November,” said Westpac in a recent note.
There has been a surprising down shift in the number of cuts the RBA is expected to make in 2024 over the past month, which mirrors what has happened in the US with the Fed.
“The market is pricing in 90% odds of a 25 bp rate cut in 2024 vs. almost 50 bp of total easing that was seen earlier this month,” according to BBH.
The main macroeconomic data to come out of Australia over the last few sessions was the Australian Bureau of Statistics Labour Force Survey (LFS).
This showed employment down by 6.6k (from plus 117.6k in February), the Unemployment Rate rising to 3.8% (from 3.7%) and the Participation Rate at 66.6% (from 66.7%).
The data failed to move the dial with regards to the Aussie Dollar.
“It provided a slightly better read on the underlying state of labour market conditions over the opening quarter,” according to Westpac.
Even though the Unemployment Rate rose to 3.8%, it is still below the RBA’s estimated full employment range of 4.0% - 5.75%, so is unlikely to impact their policy decisions in the near term, and therefore the Australian Dollar.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD stays below 1.1100, looks to post weekly losses
EUR/USD continues to trade in a narrow range below 1.1100 and remains on track to end the week in negative territory. Earlier in the day, monthly PCE inflation data from the US came in line with the market expectation, failing to trigger a reaction.
GBP/USD struggles to find a foothold, trades near 1.3150
GBP/USD stays on the back foot and trades in negative territory at around 1.3150 on Friday. The US Dollar holds its ground following the July PCE inflation data and doesn't allow the pair to stage a rebound heading into the weekend.
Gold retreats toward $2,500 ahead of the weekend
Gold stays under modest bearish pressure and declines toward $2,500 in the American session on Friday. The 10-year US Treasury bond yield edges higher toward 3.9% after US PCE inflation data, causing XAU/USD to stretch lower.
Week ahead – Investors brace for NFP amid Fed rate cut speculation
Here comes another NFP week, with investors eagerly awaiting the results as they try to discern the size and pace of the Fed’s forthcoming rate cuts. The weaker than expected July numbers triggered market turbulence, instilling fears about a potential recession in the US.
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.