Dollar Firmer On Hawkish Fed, AUD Weaker

The Australian dollar fell as the U.S. dollar continued to strengthen under the influence of a hawkish Federal Reserve.

AUD losses may be limited as the Reserve Bank of Australia takes a hawkish stance on the trajectory of interest rates

The U.S. dollar remained stable as Federal Reserve officials delayed the timing of the first rate cut in 2024.

AUD/USD extended losses for the third consecutive trading day on Monday. However, the decline in AUD/USD may be limited due to the hawkish stance of the Reserve Bank of Australia (RBA). According to ABC News, Reserve Bank of Australia Governor Michele Bullock said in a recent press conference that the board discussed potential rate hikes and rejected the consideration of a rate cut in the near term.

The U.S. dollar (USD) remained stable as Federal Reserve officials delayed the timing of the first rate cut this year. Investors are currently pricing in a probability of a Fed rate cut in September of nearly 65.9%, down from 70.2% a week ago, according to the CME FedWatch Tool.

On Monday, the Australian ASX200 index fell below 7750 points, giving up some of the gains in the previous trading day. The decline was led by a fall in US stocks, with Nvidia and other AI-related chip stocks seeing heavy selling after strong gains.

The People’s Bank of China injected 50 billion yuan through seven-day reverse repo, keeping the reverse repo rate at 1.8%. Any changes in the Chinese economy could affect the Australian market as China and Australia are close trading partners.

Investors may be cautious ahead of the release of Australian inflation data this week. Market expectations for the Reserve Bank of Australia to cut interest rates this year have been significantly reduced, with easing not expected until April next year.

On Friday, the US Composite Purchasing Managers’ Index for June exceeded expectations, rising to 54.6 from 54.5 in May. The figure hit the highest level since April 2022. The manufacturing PMI rose to 51.7 from 51.3, beating the expected 51.0. Similarly, the services PMI rose to 55.1 from 54.8 in May, beating the consensus forecast of 53.7.

Tom Barkin, president of the Richmond Fed, said Thursday that the central bank has the necessary firepower but will learn more in the coming months, according to Bloomberg. Meanwhile, Neel Kashkari, president of the Minneapolis Fed, noted that it could take a year or two to get inflation back to 2%.

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