On Wednesday, AUD/USD dropped even more on renewed risk aversion. This drop followed the same global trends that were continuing to plague the market as a result of the pandemic. The AUD/USD exchange rate was surprisingly resilient to start the day, holding onto early gains after a slew of mixed economic data hit the market in Australia. Soon thereafter, it ceded ground as the USD further confirmed its earlier recovery gains. A more positive stance towards possible trade reconciliation talks between President Trump and Chinese President Xi is helping to shore up the USD’s resilience. One provision in the recent US-Canada trade agreement has shored up its foundation even further.
The USD is firming ahead of a slew important US economic data including the US ADP jobs report and ISM Services PMI. At the same time, the AUD/USD currency pair is trading nervously to reflect these happenings. The duo’s stellar showing underscores the opposite trajectories of the two currencies while the overall market environment remains volatile. Deteriorating mixed economic indicators coming from down under added to the confusion. Consequently, the AUD came under renewed pressure as traders weighed the implications of a future interest rate cut from the Reserve Bank of Australia (RBA).
The RBA’s next meeting on interest rates is likely to see the seventh consecutive cut. This would be a significant down payment on normalizing rates after the drastic hikes implemented in 2022 and 2023. This anticipated adjustment could further influence the AUD’s trajectory against the USD, as market participants digest the implications for economic growth in Australia.
Meanwhile, the pound dollar exchange rate held above 1.3500 heading into European trading, showing surprising strength despite continued volatility in risk asset prices. Investors are understandably anxious about hearing some crucial US data that might affect the dovish pairing. The EUR/USD traded below 1.1400, continuing the recent pattern as the USD positioned itself for key US economic releases.
Beyond these recent headlines, there have been broader consequences in analyzing the effects of trade agreements on currency movements. The recent US-Canada trade deal has given a big hand in stabilizing the USD. Accordingly, it has pushed the dollar’s value sharply higher against most currencies, including the AUD.
“Why is the ECB set to cut interest rates again and what does that mean” – [no specific author/source mentioned]
With the markets anticipating a plethora of economic announcements USD and AUD are surely ones to keep an eye on. The AUD is particularly sensitive to the domestic economic data and the actions of the central bank. At the same time, the USD continues to benefit from lofty expectations stemming from potential future trade negotiations and robust economic indicators.