AUD/USD reclaims seven-month high around 0.6550 as US Dollar slides further
- AUD/USD revisits the seven-month high around 0.6550 as Trump’s attack on Fed’s independence has weakened the US Dollar.
- The Aussie inflation grew moderately by 2.1% on year in May.
- Soft Aussie CPI data paves the way for interest rate cuts by the RBA in July.
The AUD/USD pair extends its winning streak for the fourth trading day on Thursday, revisits the seven-month high around 0.6550. The Aussie pair strengthens as the US Dollar (USD) tumbles, following confirmation from United States (US) President Donald Trump that he will announce Federal Reserve (Fed) Chair Jerome Powell’s successor soon.
“I know, within three or four people, who I’m going to pick,” Trump said to reporters on Wednesday after they asked if he is interviewing candidates for Powell’s replacement, Reuters reported.
Theoretically, the replacement of the Fed chair doesn’t materially impact the US Dollar. However, the reason that Powell is not lowering interest rates behind his replacement has raised concerns over US Dollar’s exceptionalism.
During the European trading session, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, posts a fresh three-year low around 97.00.
Although investors have underpinned the Australian Dollar (AUD) against North American currencies, it is underperforming its other peers as market experts have become increasingly confident that the Reserve Bank of Australia (RBA) will cut interest rates in the July policy meeting due to cooling inflationary pressures.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.52% | -0.64% | -0.83% | -0.27% | -0.45% | -0.39% | -0.62% | |
| EUR | 0.52% | -0.06% | -0.35% | 0.27% | 0.11% | 0.13% | -0.08% | |
| GBP | 0.64% | 0.06% | -0.30% | 0.33% | 0.16% | 0.22% | -0.01% | |
| JPY | 0.83% | 0.35% | 0.30% | 0.59% | 0.44% | 0.45% | 0.26% | |
| CAD | 0.27% | -0.27% | -0.33% | -0.59% | -0.16% | -0.21% | -0.34% | |
| AUD | 0.45% | -0.11% | -0.16% | -0.44% | 0.16% | -0.05% | -0.19% | |
| NZD | 0.39% | -0.13% | -0.22% | -0.45% | 0.21% | 0.05% | -0.14% | |
| CHF | 0.62% | 0.08% | 0.01% | -0.26% | 0.34% | 0.19% | 0.14% |
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).
Economists at State Street Global Advisors stated that they are convinces that the “RBA needs to cut in July to safeguard growth as inflation is clearly out of their way now”.
This week, the Monthly Consumer Price Index (CPI) data for May showed that price pressures grew moderately. Inflationary pressures grew by 2.1% year-on-year, slower than estimates of 2.3% and the prior release of 2.4%.
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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