AUD/USD trades with caution near 0.6400 as Fed Powell’s speech takes centre stage

Source Fxstreet
  • AUD/USD remains under pressure around 0.6400 as the US Dollar trades firmly ahead of Fed Powell’s speech.
  • Fed dovish speculation has slightly cooled ahead of Fed Powell’s speech at the Jackson Hole Symposium.
  • Preliminary Australian PMI data grew at a faster pace in August.

The AUD/USD pair trades cautiously near a fresh two-month low around 0.6400 during the European trading session on Friday. The Aussie pair is expected to remain on tenterhooks as investors await Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole (JH) Symposium at 14:00 GMT.

Investors will pay close attention to Fed Chair Powell’s speech to get fresh cues about whether the United States (US) central bank will cut interest rates in the September policy meeting.

Ahead of the Fed Powell’s speech, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, posts a fresh 10-day high around 98.80.

Meanwhile, traders have trimmed bets supporting interest rate cuts by the Fed in September. According to the CME FedWatch tool, the probability of the Fed cutting interest rates in September has eased to 73.3% from 85.4% seen a week ago.

On Thursday, Kansas City Fed Bank President Jeffrey Schmid stated that there is no rush for interest rate cuts as inflation is still above the central bank’s target of 2%.

In Australia, upbeat flash S&P Global Purchasing Managers’ Index (PMI) data for August has failed to lift the Australian Dollar. The agency reported on Thursday that the Composite PMI came in at 54.9, higher than 53.8 in July. Robust business activity in both the manufacturing and the services sectors contributed to a strong growth in the private sector.

 

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.


Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Ethereum Price Forecast: ETH bounces off $4,100 as whales show resilienceEthereum (ETH) saw a 5% gain on Wednesday as large-scale holders continued accumulating the altcoin despite increased profit-taking from retailers.
Author  FXStreet
Yesterday 01: 40
Ethereum (ETH) saw a 5% gain on Wednesday as large-scale holders continued accumulating the altcoin despite increased profit-taking from retailers.
placeholder
Bitcoin Price Forecast: BTC steadies at $113,500 as traders await Powell’s Jackson Hole speechBitcoin (BTC) steadies around $113,500 at the time of writing on Thursday after falling 3% so far this week.
Author  FXStreet
Yesterday 09: 40
Bitcoin (BTC) steadies around $113,500 at the time of writing on Thursday after falling 3% so far this week.
placeholder
Ripple Price Forecast: XRP slips as investors lock in $300M profit ahead of Fed Chair Powell's speechXRP fell 3% to $2.85 on Thursday as investors booked over $300 million in profits following hawkish Federal Open Market Committee (FOMC) minutes from its July meeting.
Author  FXStreet
9 hours ago
XRP fell 3% to $2.85 on Thursday as investors booked over $300 million in profits following hawkish Federal Open Market Committee (FOMC) minutes from its July meeting.
placeholder
Ethereum Price Forecast: ETH risks selloff as supply in profit tops 90% ahead of Powell's speechEthereum's (ETH) large percentage of supply in profit could stir selling activity as hawkish signs continue to grow on Thursday, ahead of Federal Reserve (Fed) Chair Jerome Powell's speech at Jackson Hole.
Author  FXStreet
9 hours ago
Ethereum's (ETH) large percentage of supply in profit could stir selling activity as hawkish signs continue to grow on Thursday, ahead of Federal Reserve (Fed) Chair Jerome Powell's speech at Jackson Hole.
placeholder
Gold slips as reduced Fed rate cut bets underpin USD ahead of Powell's Jackson Hole speechGold (XAU/USD) remains under some selling pressure for the second straight day on Friday, though it manages to hold above the overnight swing low.
Author  FXStreet
5 hours ago
Gold (XAU/USD) remains under some selling pressure for the second straight day on Friday, though it manages to hold above the overnight swing low.
Related Instrument
goTop
quote