- The AUD/USD collapses from the previous psychological resistance at 0.6500.
- Australia waits for the April CPI data, while the US looks for clues about the next movement of the Fed in the FOMC minutes.
- Divergence in monetary policy and rates expectations remain critical for the next movement of the pair.
The Australian dollar (AUD) faces a renewed pressure against the US dollar (USD) on Tuesday, since the dollar recovers on all fronts after mixed economic data of the United States and a resurgence in market liquidity.
After registering a gain of 1.42% last week and briefly touching a maximum of six months of 0.6537 on Monday, the AUD/USD has retreated below the 0.6500 area at the time of writing this article. The movement reflects a combination of technical exhaustion and a change in macroeconomic feeling.
The AUD/USD looks towards the publication of the Australian CPI data and the FOMC minutes
Despite the broader concerns about the fiscal agenda of President Trump and tariff threats, the aggressive continuous tone of the Federal Reserve (Fed) has helped limit the downward pressure over the USD. In contrast, the Bank of the Australian Reserve (RBA) remains moderate, prioritizing support for internal growth in increasing external uncertainty.
The markets are now returning their attention to the next inflation data in Australia. The monthly consumer price index (CPI) will be published on Wednesday, with the annual inflation rate that is expected to decrease to 2.3% from the previous 2.4%.
A smoother impression could reinforce the expectations of additional cuts in RBA rates in the coming months.
In the United States, attention focuses on the publication of the minutes of the Federal Open Market Committee (FOMC) on the decision of Mays, which could offer greater clarity on the Fed policy perspective in the midst of persistent inflation and winds against prosecutors.
With the divergence of policies becoming more pronounced and the audience lacking new internal catalysts, the pair could have difficulty recovering the bullish impulse. A sustained rupture below 0.6450 could expose the AUD/USD to a greater fall to the key psychological support in 0.6400.
US interest rates
Financial institutions charge interest rates on loans to borrowers and pay them as interest to savers and depositors. They influence the basic types of interest, which are set by central banks based on the evolution of the economy. Normally, central banks have the mandate to guarantee the stability of prices, which in most cases means setting as an objective an underlying inflation rate around 2%.
If inflation falls below the objective, the Central Bank can cut the basic types of interest, in order to stimulate credit and boost the economy. If inflation increases substantially above 2%, the Central Bank usually rises the interest rates of basic loans to try to reduce inflation.
In general, higher interest rates contribute to reinforce the currency of a country, since they make it a more attractive place for world investors to park their money.
The highest interest rates influence the price of gold because they increase the opportunity cost of maintaining gold instead of investing in an asset that accrues interest or depositing effective in the bank.
If interest rates are high, the price of the US dollar (USD) usually rises and, as gold quotes in dollars, the price of low gold.
The federal funds rate is the type to a day that US banks lend each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set at a fork, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the aforementioned figure.
Market expectations on the interest rate of the Federal Reserve funds are followed by the Fedwatch of the CME tool, which determines the behavior of many financial markets in the forecast of future monetary policy decisions of the Federal Reserve.
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.
