AUDUSD Fundamental Analysis – 19-August-2024
Last week, RBA Governor Michelle Bullock addressed the current economic environment, saying it’s still “too early” to consider lowering interest rates. While inflation appears to be gradually easing, she emphasized that it remains above desirable levels, describing it as “too high.” The AUD/USD currency pair trades at about $0.668 as of writing.
The RBA’s inflation target of 2%-3% is unlikely to be achieved until late next year, highlighting the need for continued vigilance. These remarks underline the RBA’s ongoing concerns about persistent inflation and justify the decision to maintain interest rates at 4.35% during the August meeting—marking the sixth consecutive session of holding rates steady.
Resilient Economy Supports RBA’s Decision
Despite global economic uncertainties, the Australian economy has shown signs of resilience. This strength and inflationary pressures reinforce the RBA’s decision to keep rates stable. The central bank remains cautious, prioritizing long-term stability over short-term adjustments, critical in preventing inflation from getting out of control.
US Federal Reserve’s Dovish Approach Offers a Sharp Contrast
On the other hand, the US Federal Reserve is expected to begin easing its monetary policy soon. Predictions suggest that the Fed might lower interest rates as early as September due to rising concerns about unemployment and overall economic slowdown.
This more lenient Fed approach has led to growing differences between US and Australian monetary policies, contributing further to the Australian dollar’s recent surge.
What Does This Mean for Global Markets?
The diverging monetary paths of Australia and the US could have broader implications for global currency markets. As Australia sticks to its higher interest rates while the US potentially shifts toward easing, investors may find the Australian dollar more attractive.
These dynamics could continue to support the Australian dollar in the coming months, especially if inflationary risks persist in Australia.
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