AUD/USD slumps to near 0.6660 on cautious market sentiment

AUD/USD extends its downside trend to 0.6660 on a dismal market mood.
US political uncertainty and PBoC’s surprise rate-cut decision dampen investors’ risk appetite.
The US Dollar will dance to the tunes of the US economic data.

Sagar Dua FXStreet

The AUD/USD pair extends its losing spree for the sixth trading session on Monday. The Aussie asset slides further to near 0.6660 as cautious market sentiment weighs heavily on Asia-Pacific currencies and equities of the world’s largest continent.

Investors’ risk appetite weakened due to uncertainty over the United States (US) Presidential elections and an unexpected rate-cut announcement by the People’s Bank of China (PBoC). The nomination of US Vice President Kamala Harris for leading the Democratic against Donald Trump-led-Republicans has increased political uncertainty as she was endorsed of Kamala Harris by all state Democratic Party Chairs.

In addition to US political uncertainty, the PBoC's surprise rate-cut move to boost liquidity stimulus to spur domestic demand has raised concerns over China’s economic outlook. The PBoC cut its one-year and five-year Loan Prime Rate (LPR) to 3.35% and 3.85%, respectively.

On the policy front, growing speculation that the Reserve Bank of Australia (RBA) could raise interest rates further this year due to persistent price pressures.

Meanwhile, the US Dollar (USD) edges lower due to deepening political uncertainty. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls slightly to 104.20.

This week, the US Dollar will be guided by a slew of US economic data. Top-tier economic data such as Q2 Gross Domestic Product (GDP) and the Personal Consumption Expenditure Price Index (PCE) for June will provide cues about when the Federal Reserve (Fed) will start reducing interest rates this year.

Economic Indicator

PBoC Interest Rate Decision

The People’s Bank of China’s (PBoC) Monetary Policy Committee (MPC) holds scheduled meetings on a quarterly basis. However, China’s benchmark interest rate – the loan prime rate (LPR), a pricing reference for bank lending – is fixed every month. If the PBoC forecasts high inflation (hawkish) it raises interest rates, which is bullish for the Renminbi (CNY). Likewise, if the PBoC sees inflation in the Chinese economy falling (dovish) and cuts or keeps interest rates unchanged, it is bearish for CNY. Still, China’s currency doesn’t have a floating exchange rate determined by markets and its value against the US Dollar is fixed mainly by the PBoC on a daily basis.

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