AUD/USD Remains Stable Despite Heightened Risk Aversion

AUD/USD remained stable on Monday despite heightened risk aversion. AUD losses may be limited due to persistently high inflation rates, stronger retail sales and services PMIs.

Minutes from the Reserve Bank of Australia’s June meeting showed that policymakers stressed the need to start being vigilant about upside risks to inflation. Policymakers noted that a sharp rise in prices may warrant a sharp increase in interest rates. While interest rates remained stable in June, the unexpected rise in CPI from 3.6% to 4.0% in May raised the alarm that the RBA may raise the cash rate to 4.6% in September.

The US dollar (USD) may face challenges after data released last Friday showed that US job growth slowed in May. While the non-farm payrolls (NFP) in June exceeded market expectations, it was a slowdown compared to the growth in May. In addition, the unemployment rate also rose in June. This may lead traders to speculate that the Federal Reserve (Fed) may cut interest rates sooner rather than later.

The Chicago Mercantile Exchange’s (CME) FedWatch Tool shows that interest rate markets are pricing in an almost 70.7% probability of a September rate cut, up from 64.1% a week ago.

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