Investors Remain Cautious Ahead Of Fed Rate Decision, AUD Remains Weak

AUD/USD edged lower on Tuesday as the dollar remained strong thanks to a strong U.S. non-farm payrolls report for May. This reduced the odds of a rate cut by the Federal Reserve in 2024. The CME FedWatch Tool showed the probability of the Fed cutting rates by at least 25 basis points in September fell to around 49.0% from 59.5% a week ago.

Downside for the AUD may be limited as traders expect the Reserve Bank of Australia (RBA) to maintain higher interest rates this year. Last week, RBA Governor Michele Bullock said the central bank was ready to raise interest rates if the consumer price index (CPI) did not return to its target range of 1%-3%, NCA NewsWire reported.

The U.S. dollar (USD) held its ground despite two consecutive days of declines in U.S. Treasury yields. Investors turned cautious ahead of the Fed’s policy decision and key U.S. inflation data expected on Wednesday. The Fed is expected to keep interest rates steady between 5.25%-5.50% to curb inflation moving towards its 2% target. The US headline and core CPI data for May are expected to rise 3.4% and 3.5% year-on-year, respectively.

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