The Australian dollar (AUD) skyrocketed against the US dollar (USD) during the first day of trading in Asia on Monday. It broke the record for the highest remarkable multi-day peak. The USD is back under new selling pressure. This change comes against a backdrop of increasing expectations for a Federal Reserve cut in interest rates. Analysts suggest that signs of easing inflation in the United States are further bolstering these rate cut bets, contributing to the weaker dollar.
The AUD/USD exchange rate has been able to build on its steady rise throughout the session, with reports indicating that “AUD/USD builds on its steady Asian session move up amid a weaker USD,” according to FXStreet. This quote sums up the prevailing mood right now as traders take cues from the economy and market sentiment.
As the market digests recent economic data, concerns surrounding US fiscal policy and renewed tensions between the US and China have created a softer risk tone. This kind of tone usually serves as a bit of a headwind for higher yielding currencies like the AUD. The geopolitical risks tied to these developments will likely affect investor sentiment, resulting in risk-averse trading patterns.
Reserve Bank of Australia (RBA) dovishness dovishes down under and further undermines the AUD. These recent gains against the USD are truly remarkable. As the RBA’s dovish shift shows, the AUD’s upside appreciation potential could be constrained as monetary policy still remains accommodative. This dovish outlook highlights the unusual intricacies of the currency market, particularly that local economic policy can have a strong effect on local exchange rates.
Market analysts are scratching their heads as the AUD surges. These gains can still be threatened by external factors such as global trade tensions and fiscal uncertainties which lead to volatility. A further softer risk environment could prove to be the greater challenge to the recently AUD/USD pair’s advances.
“AUD/USD builds on its steady Asian session move up amid a weaker USD.” – FXStreet