Australian dollar falls despite a risk-on mentality following Fed Chair Powell’s dovish comments.
The Australian Dollar (AUD) edged lower on Monday, but remained near a seven-month high of 0.6798. However, the AUDUSD pair advanced due to increased risk-on attitude following the dovish statement by US Federal Reserve (Fed) Chairman Jerome Powell at the Jackson Hole Symposium on Friday.
AUD fall may be limited due to the RBA’s hawkish outlook.
The Aussie Dollar was also supported by the hawkish atmosphere surrounding the Reserve Bank of Australia (RBA). Regarding the policy outlook. According to the most recent RBA Minutes, board members agreed that a rate drop is unlikely to occur anytime soon. Furthermore, RBA Governor Michele Bullock stated that the Australian central bank will not hesitate to hike interest rates again to battle inflation if necessary.
The US dollar falls due to rising anticipation of a 25 basis point rate drop in September.
The US dollar (USD) falls as the prospects of a September rate drop increase. According to the CME FedWatch Tool, markets now fully expect the Federal Reserve to decrease interest rates by at least 25 basis points (bps) at its September meeting.
Fed Chair Jerome Powell said at the Jackson Hole Symposium, “The time has come for policy to adjust.” Powell did not, however, say when or how much the rate decreases would be.
Daily Market Movers: The Australian Dollar Despite the hawkish RBA, the market moves down.
According to Bloomberg, Philadelphia Fed President Patrick Harker stated on Friday that the US central bank’s approach to interest rate adjustments must be “methodical,” implying that policymakers intend to cut rates throughout the rest of 2024 as the US central bank prepares for a dovish shift.
On Friday, Chicago President Austan Goolsbee stated that the Fed has observed widespread progress in meeting its objectives and that inflation should continue to rise near the US central bank’s target range. Policy is currently at its tightest position in the whole hiking cycle. According to Reuters, everything we hoped for in terms of lower interest rates has happened.
In August, the US Composite PMI fell marginally to 54.1, the lowest reading in four months. Low, down from 54.3 in July, but still above market forecasts of 53.5. This shows that US business activity is expanding, with 19 consecutive months of growth.
Australia’s Judo Bank Composite Purchasing Managers Index (PMI) increased to 51.4 in August from 49.9 in July. This is the fastest growth in three months, thanks to a stronger performance in the services sector, despite a more dramatic contraction in industrial output.
FOMC minutes from July’s policy meeting, most Fed members agreed last month that they would likely lower their benchmark interest rate.
According to the FOMC minutes from July’s policy meeting, most Fed members agreed last month that they would likely lower their benchmark interest rate at the September meeting as long as inflation remained low.
On Tuesday, the RBA Minutes indicated that the board members had considered a rate hike earlier this month before deciding that maintaining existing rates would be a better risk-reward balance. Additionally, RBA members agreed that a rate drop is unlikely in the near future.
