- The AUD/USD pair was trading stronger around 0.6670 at the start of Monday’s Asian session.
- The mood at the US University of Michigan rose for the first time since March.
- The RBA’s hawkish stance is strengthening the Australian dollar against the US dollar.
The AUD/USD pair is starting the recent week on a positive note, around 0.6670. The risk tone in the markets and rising expectations of an imminent rate cut by the Federal Reserve (Fed) are pushing the US dollar (USD) lower and providing some support to the pair. This week, the focus will be on the minutes of the August Reserve Bank of Australia (RBA) board meeting and the speech by Fed Chair Jerome Powell.
U.S. consumer sentiment rose for the first time in five months. The University of Michigan’s preliminary consumer sentiment index improved to 67.8 in August from 66.4 earlier, beating market expectations of 66.9. Meanwhile, U.S. housing data fell sharply in July. Housing starts fell 6.8% in July to 1.238 million units from a 1.1% augment in June, while building permits fell 4.0% in July after rising 3.9% in June.
Markets are overconfident that the Fed will rush to cut rates, but that depends on incoming data. According to the CME FedWatch tool, traders have priced in a nearly 76% chance of a 25 basis point (bps) Fed rate cut at its September meeting. A week ago, markets priced in a better than 50% chance that the Fed will implement a deeper cut and cut rates by 50 bps. Fed Chair Powell’s speech at a symposium in Jackson Hole on Friday could provide some clues about the pace of the Fed’s monetary easing. Dovish comments from officials could put some selling pressure on the U.S. dollar.
On the other hand, the hawkish stance of the Australian central bank continues to support the Australian dollar (AUD). RBA Governor Michele Bullock noted that the central bank remains focused on potential upside risks to inflation and is not considering any rate cuts in the near term. “Based on what the Board currently knows, it does not expect to be in a position to lower interest rates in the near term,” Bullock said.
