- The AUD/USD is consolidated below 0.6300 while investors expect the US CPI data for February.
- The US dollar has remained under pressure amid the growing economic risks in the US.
- The commercial war between the US and China has decreased the attractiveness of the Australian dollar.
The aud/USD torque is negotiated in a narrow range below the key level of 0.6300 in the European session on Wednesday. The Australian torque is consolidated while investors expect the consumer price index (CPI) of the United States (USA) for February, which will be published at 12:30 GMT.
Investors expect US inflation data to obtain new clues about whether the Fed will cut interest rates at the May meeting. At the policy meeting next week, the Fed is almost sure of maintaining stable interest rates in the range of 4.25%-4.50%. According to the CME Fedwatch tool, there is a 42% probability that the Central Bank cuts interest rates in May, a significant increase from 10.4% seen a month ago.
The US CPI report is expected to show that the general year -on -year inflation rose at a slower pace of 2.9%, compared to a 3% increase seen in January. In the same period, the underlying IPC is expected to exclude volatile food and energy prices – has decelerated 3.2% since the previous publication of 3.3%.
Before the US inflation data, the US dollar index (DXY) is marginally above its minimum of four months of 103.35. The US dollar (USD) has remained in the rear while investors care about the economic perspectives of the US under the leadership of President Donald Trump. On Tuesday, the comments of the US Secretary of Commerce, Howard Lutnick, indicated that Trump’s policies generate fears that they could lead to a recession.
Meanwhile, the potential for increase in the Australian dollar (AUD) remains limited in the midst of fears that the commercial war between the US and China could result in a strong decrease in business activity in Australia, knowing that Australia depends largely on exports to China. Until now, the US has imposed 20% tariffs on China imports.
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 in circulation along with local tickets. According to data from 2022, it is the most negotiated currency in the world, with more than 88% of all global currency change operations, which is equivalent to an average of 6.6 billion dollars in daily transactions. After World War II, the USD took over the pound sterling as a world reserve currency.
The most important individual factor that influences the value of the US dollar is monetary policy, which is determined by the Federal Reserve (FED). The Fed has two mandates: to achieve price stability (control inflation) and promote full employment. Its main tool to achieve these two objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the 2% objective set by the Fed, it rises the types, which favors the price of the dollar. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the dollar.
In extreme situations, the Federal Reserve can also print more dollars and promulgate quantitative flexibility (QE). The QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is an unconventional policy measure that is used when the credit has been exhausted because banks do not lend each other (for fear of the default of the counterparts). It is the last resort when it is unlikely that a simple decrease in interest rates will achieve the necessary result. It was the weapon chosen by the Fed to combat the contraction of the credit that occurred during the great financial crisis of 2008. It is that the Fed prints more dollars and uses them to buy bonds of the US government, mainly of financial institutions. Which usually leads to a weakening of the US dollar.
The quantitative hardening (QT) is the reverse process for which the Federal Reserve stops buying bonds from financial institutions and does not reinvote the capital of the wallet values ​​that overcome in new purchases. It is usually positive for the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
