The AUD/USD pair is trading at approximately 0.6810 in the early hours of the Asian session on Friday, reflecting a firm position supported by a downturn in the US Dollar. This decline is attributed to recent signals from Federal Reserve officials regarding potential interest rate cuts later this year, which have reshaped market expectations.
In light of these developments, the monetary policy divergence between the Reserve Bank of Australia (RBA) and the Federal Reserve will likely play a crucial role in shaping the currency pair’s trajectory in the coming months. A recent two-day Federal Reserve meeting concluded with an unanticipated cut of 50 basis points, leading to new projections showing a gradual easing cycle. The median forecast for 2024 has been revised down to 4.375%, a significant shift from the 5.125% predicted in June. Such adjustments may continue to exert downward pressure on the US Dollar, thereby providing upward momentum for AUD/USD in the near term.
Meanwhile, the RBA is expected to maintain its Official Cash Rate during its next monetary policy meeting, although a rate cut is anticipated later in the year. Analysts from a major Australian bank have adjusted their predictions, now suggesting that the first RBA rate reduction could occur in December 2024, rather than November as previously thought. This revision reflects a belief that recent employment growth and the RBA Governor’s hawkish stance may create a foundation for an eventual normalization of the cash rate.
Additionally, attention will be directed toward the People’s Bank of China (PBoC), which is set to announce its interest rate decision on Friday. Any signs of continued economic weakness in China could adversely impact the Australian Dollar, given Australia’s reliance on Chinese trade, making it imperative for investors to stay informed on developments in China’s economy.
