- The AUD/USD stabilizes around 0.6400 while investors expect key economic data from the US and Australia this week.
- It is unlikely that the Fed adjusts the monetary policy if inflation expectations accelerate.
- The IPC data of the first quarter of the Australian dollar will influence the RBA monetary policy perspective.
The Aud/USD pair recovers the initial losses and remains stable around 0.6400 during the European negotiation hours on Monday. The Australian torque is negotiated in an indecisive way while investors expect a series of economic data in the United States (USA) and the Australian consumer price index (CPI), which will be published this week.
The US dollar (USD) is negotiated laterally at the beginning of the week, with the US dollar index (DXY) oscillating around 99.60.
This week, investors will pay special attention to the US PERSONAL CONSUMPTION PRICE INDEX (PCE), non -agricultural payrolls and Gross Domestic Product (GDP) data, as they will significantly influence market expectations on the monetary policy perspective of the Federal Reserve (FED). Investors will also focus on manufacturing PMI data and US ISM services to know the impact of the new tariff policies of the US president, Donald Trump, on the cost of supplies of business owners and, eventually, the increase in sales prices.
Those responsible for the Fed policy would be reluctant to make adjustments in monetary policy in case of an increase in inflation expectations. They have been guiding an “waiting and seeing” approach until obtaining clarity on how new government policies will shape the economic perspective.
In the Australian region, investors expect the data of the Consumer Price Index (CPI) of the first quarter, which will be published on Wednesday. The Australian IPC is expected to have grown by 2.2% compared to the same quarter of the previous year, slower than the 2.4% increase observed in the last quarter. The slowdown in inflationary pressures would increase the expectations that the Bank of the Australian Reserve (RBA) will cut interest rates at the May meeting.
Meanwhile, the growing uncertainty about commercial relations between the US and China will continue to be the main trigger for the pair. Given Australia’s high dependence on its exports to China, uncertainty is increasing on the economic prospects of the latter, impacting the Australian dollar (Aud).
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.
