AUD/USD slumps to near 0.6560 as US Dollar gains ground
- AUD/USD falls sharply to near 0.6560 as the US Dollar extends its recovery.
- RBA’s Bullock remains wary of interest rate cuts until she gets evidence that inflation will sustainably return to the 2.5% target.
- Investors await Australian Q2 CPI data and the Fed’s monetary policy.
The AUD/USD pair trades 0.45% lower to near 0.6560 during the European trading session on Friday. The Aussie pair faces a sharp selling pressure as the Australian Dollar (AUD) underperforms its peers, except the Japanese Yen (JPY), even as Reserve Bank of Australia (RBA) Governor Michelle Bullock emphasized keeping inflation sustainably to its 2.5% target over monetary policy expansion.
Australian Dollar PRICE Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.10% | 0.39% | 0.56% | 0.31% | 0.53% | 0.32% | 0.16% | |
| EUR | -0.10% | 0.33% | 0.43% | 0.23% | 0.33% | 0.21% | 0.04% | |
| GBP | -0.39% | -0.33% | 0.14% | -0.12% | 0.00% | -0.09% | -0.28% | |
| JPY | -0.56% | -0.43% | -0.14% | -0.26% | -0.08% | -0.23% | -0.40% | |
| CAD | -0.31% | -0.23% | 0.12% | 0.26% | 0.27% | 0.01% | -0.18% | |
| AUD | -0.53% | -0.33% | -0.01% | 0.08% | -0.27% | -0.12% | -0.26% | |
| NZD | -0.32% | -0.21% | 0.09% | 0.23% | -0.01% | 0.12% | -0.17% | |
| CHF | -0.16% | -0.04% | 0.28% | 0.40% | 0.18% | 0.26% | 0.17% |
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).
On Thursday, the comments from RBA Bullock in a speech to the Anika Foundation signaled that the central bank is wary of reducing interest rates until it gets enough evidence that inflation will sustainably return to the 2.5% target, The Guardian reported.
For fresh cues on the interest rate outlook, investors await the Q2 Consumer Price Index (CPI) data, which is scheduled to be released on Wednesday. In the first quarter, price pressures rose at a steady pace of 2.4%.
On the global front, investors will pay close attention to trade talks between the United States (US) and China, which are scheduled for next week in Stockholm. The impact of US-China trade talks is expected to be significant on the Australian Dollar, given that the Australian economy relies heavily on its exports to China.
Meanwhile, a further upside move in the US Dollar (USD) has also weighed on the Aussie pair. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps to near 97.70. The Greenback attracts bids on the hopes that the US and the European Union (EU) will reach a trade agreement before the August 1 tariff deadline.
Going forward, the major trigger for the US Dollar will be the Federal Reserve’s (Fed) monetary policy announcement on Wednesday.
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.
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