The Australian Dollar is experiencing downward pressure in the aftermath of the Reserve Bank of Australia’s (RBA) November meeting minutes, which underscore the necessity for a restrictive monetary policy due to inflation concerns. While RBA officials indicated that there is no immediate urgency to alter the cash rate, they have not dismissed potential adjustments in the future, suggesting a degree of caution as they assess economic conditions. Current expectations hold that the cash rate will remain stable until at least mid-2025.
Despite earlier gains attributed to hawkish signals from RBA Governor Michele Bullock, who assured that current interest rates are adequately restrictive, the AUD remains vulnerable. The focus now shifts to how external economic factors, particularly developments in the United States, will influence the Australian currency’s trajectory.
Meanwhile, the US Dollar is correcting downwards, influenced by comments from Federal Reserve officials who project a tempered approach to rate cuts. Traders are increasingly watching the incoming Trump administration, which is anticipated to introduce tax cuts and elevated tariffs that could heighten inflation, thus affecting the Fed’s monetary policy direction.
As the market awaits the release of key US economic data, including October’s Building Permits and Housing Starts, the attention will also be on the implications for future rate movements. Fed Chair Jerome Powell has conveyed that there is no rush to lower interest rates, citing a robust economy amid ongoing inflationary pressures. Other Fed officials have echoed similar sentiments, advocating a cautious approach moving forward.
In Australia, the unemployment rate has remained stable at 4.1%, consistent with expectations, while employment growth has not met projections. The Consumer Inflation Expectations have also witnessed a decline, further substantiating a cautious outlook for the local economy. Currently, the AUD/USD pair trades near 0.6500, indicating short-term bearish momentum. Should it break through the significant support level at 0.6400, further declines could ensue, while a rebound past 0.6500 may indicate a potential recovery.
