AUD/USD is on a strong upward trend around 0.6675 during Monday’s early Asian trading session. The US Core PCE inflation increased by 2.6% YoY in May, slightly lower than the 2.7% in April. This data, coupled with speculation of a potential rate cut by the US Federal Reserve in 2024, has put pressure on the US Dollar.
In contrast, Australia’s persistent inflation has postponed expectations of a rate cut by the Reserve Bank of Australia (RBA), leading to a boost in the Australian Dollar. The RBA is cautious about inflation risks and is unlikely to reduce interest rates anytime soon, making it one of the last G10 central banks to consider such a move.
These factors have influenced the AUD/USD pair, with investors now pricing in a 53% chance of a Fed rate cut in the September meeting. The delay in rate cuts by the RBA has further strengthened the Australian Dollar, making it a favorable choice for investors.
Factors influencing the Australian Dollar include interest rates set by the RBA, the price of Iron Ore (Australia’s biggest export), the health of the Chinese economy (Australia’s largest trading partner), inflation rates, growth rate, and Trade Balance. Market sentiment also plays a role, with risk-on sentiment generally positive for the AUD.