- The AUD/USD lowers slightly to about 0.6400 while the US dollar seeks a support after a strong drop in recent weeks.
- The president of the USA, Trump, has attacked the independence of the Fed for not lowering interest rates.
- The commercial war between the US and China could impact the Australian dollar.
The Aud/USD pair correctly corrects about 0.6400 during the European negotiation hours on Tuesday, after reaching a new maximum of four months at 0.6440 earlier in the day. The Aussie pair goes back while the US dollar (USD) strives to recover ground after remaining in a downward trajectory in recent weeks.
The US dollar index (DXY), which tracks the value of the dollar against six main currencies, seeks a support after reaching a new minimum of three years about 98.00.
However, the prospects for the US dollar remain bassists, since their safe refuge status has been under pressure due to the growing dispute between the US president, Donald Trump, and the president of the Federal Reserve (Fed), Jerome Powell.
Donald Trump has been criticizing Powell for not lowering interest rates and has blamed his restrictive monetary policy position that could lead to economic slowdown.
“With these costs tending to go down so well, just as I predict that they would do it, there can hardly be inflation, but there may be a slowdown of the economy unless Mr. too late, a great loser, lowers interest rates, now,” Trump wrote in a publication in Truth. Social on Monday.
Although investors have backed the Australian dollar (AUD) against the US dollar, it is having a lower yield compared to other peers on Tuesday, since investors fear that the escalation of the commercial war between the US and China significantly impacts the Australian economy. Since the Australian economy depends largely on its exports to China, the fears of a possible slowdown in Beijing also weighed on the Australian dollar.
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.
