Australian Dollar advances against the US Dollar amid CPI decline
The Australian Dollar (AUD) edged higher against the US Dollar (USD) on Tuesday, trading just below the seven-month high of 0.6798 reached on Monday. The AUD/USD pair may continue to climb as traders anticipate divergent policy outlooks between the Reserve Bank of Australia (RBA) and the Federal Reserve. Market participants are closely watching the upcoming Monthly Consumer Price Index (CPI) release on Wednesday, which could impact the RBA’s policy stance.
The latest RBA meeting minutes revealed that board members agreed a rate cut is unlikely in the near term. RBA Governor Michele Bullock emphasized the central bank’s readiness to raise rates again if inflation persists. The minutes from the August meeting highlighted that while underlying inflation has been declining, it remains above the 2-3% target range, leading members to consider a rate hike.
Despite the RBA's cautious stance, markets are predicting rate cuts ahead, pricing in approximately 25 basis points in cuts by the end of the year and around 75 basis points by May 2025. Although the RBA has kept the cash rate at 4.5% since November 2023 and discussed potential hikes in recent meetings, market sentiment leans towards cuts rather than increases.
Meanwhile, the Federal Reserve is expected to cut rates by a quarter-point next month, with Fed Chair Jerome Powell indicating that the time for cuts has arrived. This dovish outlook sent the USD lower against major currencies, with the AUD/USD pair experiencing a 1.3% jump, marking its best daily performance of the year. The upcoming US employment report, set for release on September 6, will be crucial in shaping market expectations ahead of the Fed's rate decision two weeks later. A weaker-than-expected jobs report could bolster hopes for a more aggressive half-point cut from the Fed.
