AUD/USD wobbles around 0.6600 ahead of key US data release
- AUD/USD trades sideways around 0.6600 ahead of the release of the US data.
- Investors will closely monitor the US Initial Jobless Claims data for fresh cues on the current status of the labor market.
- The RBA is expected to maintain the status quo on Tuesday.
The AUD/USD pair trades in a tight range around 0.6600 during the late European trading session on Thursday. The Aussie pair consolidates as investors await the United States (US) Initial Jobless Claims data for the week ending September 19 and the Durable Goods Orders data for August, which will be published at 12:30 GMT.
Ahead of the US data release, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades firmly near 97.85.
Investors will pay close attention to the US Initial Jobless Claims data for fresh cues on the current status of the labor market. Lately, all Federal Open Market Committee (FOMC) members have warned of a slowing job market and the need to adjust interest rates to support the same.
Economists expect the number of individuals seeking jobless benefits for the first time to rise to 235K from the prior reading of 231K.
The US Durable Goods Orders data for August is expected to have declined for the third straight month. The economic data is expected to have declined by 0.5%, lower than the 2.8% contraction seen in July.
Meanwhile, the next trigger for the Australian Dollar (AUD) will be the Reserve Bank of Australia's (RBA) monetary policy announcement on Tuesday. The RBA is expected to hold its Official Cash Rate steady at 3.6%.
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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