AUD/USD finds cushion near 0.6270 as US Dollar loses ground
- AUD/USD finds support near 0.6270 as the US Dollar falls back as trade war fears between the US and Columbia wane.
- The Fed is expected to keep interest rates steady in the range of 4.25%-4.50% on Wednesday.
- Investors await the Australian CPI data, which will influence RBA interest rate expectations.
The AUD/USD pair recovers some intraday losses after sliding to near 0.6270 in Monday’s European session, but is still down almost 0.2%. The Aussie pair rebounds as the US Dollar (USD) surrenders gains and turns negative, with the US Dollar Index (DXY) falling back to near the five-week low of 107.20 from the intraday high of 107.75.
The USD Index attracted significant bids at the start of the week after United States (US) President Donald Trump proposed 25% tariffs on Columbia for not accepting military flights carrying deportees. The event prompted risks of a trade war, which increased US Dollar’s safe-haven demand.
However, the US Dollar retreated later when reports from the White House confirmed that the the Colombian government agreed to Trump’s terms of accepting illegal immigrants. After that, Trump put proposed tariffs on hold.
This week, the major trigger for the US Dollar will be the Federal Reserve’s (Fed) monetary policy decision, which will be announced on Wednesday. The Fed is almost certain to leave interest rates unchanged in the range of 4.25%-4.50%. Investors will pay close attention to the Fed’s guidance on monetary policy and policymakers’ view on Trump’s call for immediate rate cuts.
Meanwhile, the Australian Dollar (AUD) exhibits a weak performance against its major peers, with investors focusing on the Q4 inflation data, which will be released on Wednesday. As measured by the Consumer Price Index (CPI), price pressures are expected to have grown by 2.5%, compared to the same quarter of the previous year, slower than 2.8% growth in the previous quarter. Quarter-on-quarter CPI is estimated to have grown by 0.3%, faster than a 0.2% increase in the third quarter of 2024.
Australian Dollar PRICE Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.04% | -0.14% | -1.02% | -0.05% | 0.26% | 0.17% | -0.64% | |
| EUR | 0.04% | -0.03% | -0.84% | 0.13% | 0.29% | 0.33% | -0.50% | |
| GBP | 0.14% | 0.03% | -1.12% | 0.16% | 0.33% | 0.37% | -0.47% | |
| JPY | 1.02% | 0.84% | 1.12% | 1.01% | 1.46% | 1.42% | 0.52% | |
| CAD | 0.05% | -0.13% | -0.16% | -1.01% | 0.11% | 0.22% | -0.62% | |
| AUD | -0.26% | -0.29% | -0.33% | -1.46% | -0.11% | 0.07% | -0.75% | |
| NZD | -0.17% | -0.33% | -0.37% | -1.42% | -0.22% | -0.07% | -1.05% | |
| CHF | 0.64% | 0.50% | 0.47% | -0.52% | 0.62% | 0.75% | 1.05% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Soft inflation numbers would prompt expectations that the Reserve Bank of Australia (RBA) will start unwinding its policy restrictiveness from the policy meeting in February. On the contrary, hot readings would do the opposite.
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 found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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