AUDUSD Fundamental Analysis – 5-August-2024

The Australian dollar has remained below $0.643 (AUD/USD), lingering near a three-month low. This downturn follows a weak jobs report from the United States, which has heightened fears of a potential US recession. In response, markets have quickly sold off riskier assets, affecting currencies like the Australian dollar.

Despite this, there are signs of support due to expectations that the US Federal Reserve will cut interest rates more aggressively, with a significant 50 basis point reduction anticipated in September.

Support from US Federal Reserve Expectations

The outlook for the Australian dollar isn’t entirely bleak. Investors are betting the Federal Reserve will implement a more substantial rate cut to counter the economic slowdown.

Such a move could relieve the Aussie dollar, as lower US interest rates generally weaken the US dollar, making other currencies more attractive.

Domestic Focus on Reserve Bank of Australia’s Decision

Closer to home, all eyes are on the Reserve Bank of Australia (RBA) as it prepares to make its latest monetary policy decision. The RBA is widely expected to keep the cash rate steady at 4.35% for the sixth consecutive meeting.

However, traders will keenly observe the bank’s forward guidance for any indications of future rate changes.

• Also read: GBPUSD Fundamental Analysis – 5-August-2024

Slowing Inflation and Future Rate Cuts

Recent data has shown that Australia’s core inflation rate has slowed more than expected, dropping to 3.9% annually and 0.8% quarterly in the second quarter. This cooling inflation has led markets to predict a 75% chance of an RBA rate cut in November, earlier than the previous forecast of April next year.

If the RBA signals a rate cut sooner rather than later, it could further impact the Australian dollar and investor strategies.

AUDUSD Fundamental Analysis – 5-August-2024

In summary, the Australian dollar navigates a complex domestic and international economic landscape. While fears of a US recession and a weak jobs report have pressured the currency, expectations of aggressive rate cuts by the Federal Reserve and potential early rate cuts by the RBA provide a mixed outlook.

Investors should stay informed on these developments to make well-informed decisions.

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