AUD/USD rallies further around 0.6600 as RBA seems done with rate cuts
- AUD/USD extends its winning spree on hawkish RBA speculation.
- Australia’s monthly household spending grew at a robust pace of 1.3% in October.
- The Fed is expected to cut interest rates by 25 basis points (bps) to 3.50%-3.75% next week.
The AUD/USD pair extends its winning streak for the tenth trading day on Thursday. The Aussie pair revisits an almost eight-month high around 0.6620 as the Australian Dollar (AUD) outperforms broadly amid expectations that the Reserve Bank of Australia (RBA) is done with reducing interest rates, and might actually go for tightening monetary conditions if inflation proves to be sticky.
Australian Dollar Price Last 7 Days
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies last 7 days. Australian Dollar was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.71% | -0.92% | -1.21% | -0.51% | -1.42% | -1.33% | -0.58% | |
| EUR | 0.71% | -0.21% | -0.51% | 0.21% | -0.69% | -0.61% | 0.14% | |
| GBP | 0.92% | 0.21% | -0.31% | 0.42% | -0.50% | -0.41% | 0.35% | |
| JPY | 1.21% | 0.51% | 0.31% | 0.69% | -0.23% | -0.17% | 0.62% | |
| CAD | 0.51% | -0.21% | -0.42% | -0.69% | -0.90% | -0.82% | -0.07% | |
| AUD | 1.42% | 0.69% | 0.50% | 0.23% | 0.90% | 0.09% | 0.81% | |
| NZD | 1.33% | 0.61% | 0.41% | 0.17% | 0.82% | -0.09% | 0.76% | |
| CHF | 0.58% | -0.14% | -0.35% | -0.62% | 0.07% | -0.81% | -0.76% |
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).
Investors responded by ramping up the risk that the next move in interest rates will actually be upward, with an increase as soon as May now priced at 50%, Reuters reported.
Traders have raised RBA hawkish bets following the release of the monthly household spending data for October. Earlier in the day, the Australian Bureau of Statistics reported that monthly household spending indicator jumped 1.3%, faster than 0.3% growth seen in September.
This week, RBA’s Governor Michele Bullock also said before the parliamentary committee that monetary policy might need to be tightened if price pressures turn out to be sticky. “If inflation proves more persistent, it would have implications for policy,” Bullock said.
In addition to the upbeat Australian Dollar, weak US Dollar (USD) is also contributing to the Aussie pair’s rally. During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, posts a fresh monthly low near 98.80.
The US Dollar has been battered by firm expectations that the Federal Reserve (Fed) will cut interest rates in its monetary policy meeting scheduled next week.
According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December policy meeting is 89%.
Fed dovish expectations have been propelled by weak United States (US) job market conditions. The US ADP reported on Wednesday that the private sector shed 32K jobs in November, while it was expected to add 5K fresh workers.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.