Aussie gains ground as US dollar weakens on rising Fed rate cut expectations
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Daily Currency Update
The AUD/USD currency pair extends its upward momentum, climbing towards the US$0.6590 level during the European trading session on Monday. The Australian dollar (Aussie) continues to gain ground against its U.S. counterpart, driven largely by broad-based weakness in the U.S. dollar (USD). This softness in the greenback follows the emergence of increased market speculation that the Federal Reserve (Fed) might adopt a more aggressive easing stance in its upcoming policy meeting.Specifically, investors are now beginning to price in the possibility of a 50-basis point (bps) rate cut, a move that would signal a significant shift in the Fed’s monetary policy approach. This shift in sentiment stems from a combination of disappointing U.S. economic data and growing concerns about the pace of economic slowdown, both of which are fuelling expectations that the Fed may need to act decisively to support growth.
As a result, U.S. Treasury yields have come under pressure, further undermining demand for the dollar and providing support for risk-sensitive currencies like the Australian dollar. Meanwhile, on the domestic front, the Australian economic calendar is relatively light this week, with no major data releases scheduled that could provide immediate direction for the AUD.
In the absence of fresh economic indicators, investors will turn their attention to the Reserve Bank of Australia’s (RBA) policy outlook. Market participants will be closely watching for any comments from RBA officials or signals regarding the future path of interest rates, especially in light of ongoing global monetary policy developments. Overall, the short-term direction of the AUD/USD pair is likely to be influenced by shifts in U.S. rate expectations and broader risk sentiment, with the RBA’s stance serving as a potential catalyst if new guidance or commentary emerges.
Key Movers
Last Friday, the U.S. Nonfarm Payrolls (NFP) report for August revealed that only 22,000 jobs were added to the economy, falling significantly short of market expectations. This underwhelming employment growth signals a potential cooling in the labour market, adding to concerns about the underlying strength of the U.S. economy.As a direct result, the Unemployment Rate ticked higher, rising from 4.2% to 4.3%, reinforcing the narrative that economic momentum may be weakening. The soft jobs data has solidified market expectations for a 25-basis point (bps) interest rate cut by the Federal Reserve at its upcoming policy meeting in September. This would mark a continuation of the Fed’s shift toward a more accommodative monetary stance as it responds to signs of a slowing economy and easing inflationary pressures.
While a larger 50 bps rate cut remains a possibility, the probability remains low, currently priced at around 8% according to market-based forecasts. Such a move would likely require a more substantial deterioration in key economic indicators or a sharp decline in inflation data.
Looking ahead, all eyes will be on the U.S. Consumer Price Index (CPI) report for August, which is due to be released later this week. The CPI is a key gauge of inflation and will be closely scrutinised by traders and policymakers alike. A weaker-than-expected CPI print could further strengthen the case for not just a 25 bps cut but potentially open the door to discussions about more aggressive easing down the line.
Ultimately, the combination of slowing job growth, rising unemployment and potentially subdued inflation could provide the Fed with greater flexibility to loosen monetary policy further in the coming months, especially if downside risks to the economy continue to mount.
Expected Ranges
- AUD/USD: 0.6500 - 0.6700 ▲
- AUD/EUR: 0.5500 - -0.43 ▲
- GBP/AUD: 2.0500 - 2.0700 ▼
- AUD/NZD: 1.1000 - 1.1200 ▲
- AUD/CAD: 0.9000 - 0.9200 ▲