AUD/USD jumps to near 0.6590 as US Dollar underperforms its peers
|- AUD/USD advances to near 0.6590 as Fed dovish expectations improve demand for riskier assets.
- Bets supporting a 50-bps interest rate cut by the Fed in the September policy meeting have emerged.
- US NFP report August showed signs of cracks in job market.
The AUD/USD pair climbs to near 0.6590 during the European trading session on Monday. The Aussie pair strengthens as the US Dollar (USD) underperforms its peers, following the emergence of market expectations that the Federal Reserve (Fed) could cut interest rates by a larger-than-usual pace of 50 basis points (bps) in the policy meeting next month.
During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades lower to near 97.60.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.08% | -0.03% | -0.38% | -0.08% | -0.46% | -0.47% | -0.27% | |
| EUR | 0.08% | 0.04% | -0.21% | -0.01% | -0.37% | -0.35% | -0.19% | |
| GBP | 0.03% | -0.04% | -0.36% | -0.06% | -0.41% | -0.39% | -0.24% | |
| JPY | 0.38% | 0.21% | 0.36% | 0.23% | -0.11% | -0.24% | 0.13% | |
| CAD | 0.08% | 0.01% | 0.06% | -0.23% | -0.28% | -0.33% | -0.19% | |
| AUD | 0.46% | 0.37% | 0.41% | 0.11% | 0.28% | 0.02% | 0.17% | |
| NZD | 0.47% | 0.35% | 0.39% | 0.24% | 0.33% | -0.02% | 0.15% | |
| CHF | 0.27% | 0.19% | 0.24% | -0.13% | 0.19% | -0.17% | -0.15% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
According to the CME FedWatch tool, traders see a 10% chance that the Fed could cut interest rates by 50 bps in the policy announcement on September 17. Fed dovish bets for a jumbo interest rate cut have stemmed from signs of cracks in job market shown by the United States (US) Nonfarm Payrolls (NFP) report for August released on Friday.
The US NFP report showed that employers hired 22K fresh workers, the lowest reading seen since January 2021. The Unemployment Rate accelerated to 4.3%, as expected, from the prior reading of 4.2%.
Going forward, investors await the US Producer Price Index (PPI) and the Consumer Price Index (CPI) data for August, which will be published on Wednesday and Thursday, respectively.
Meanwhile, upbeat market sentiment due to firm Fed dovish expectations have increased the demand of risker assets, such as the Australian Dollar (AUD). The antipodean is outperforming a majority of its peers, expect its neighbour New Zealand Dollar (NZD).
This week, Australian economic calendar will be light, therefore, market expectations for the Reserve Bank of Australia’s (RBA) monetary policy outlook will be key trigger for the Aussie Dollar.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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