Australian Dollar remains strong ahead of RBA
- Aussie climbs on upbeat risk appetite and a softer US Dollar.
- Traders downplay the potential impact of new tariffs.
- RBA expected to cut the cash rate from 4.35% to 4.10%.
The AUD/USD pair posts a fresh two-month high at 0.6373 in Monday’s session. The Aussie pair strengthens as the Australian Dollar (AUD) performs strongly in an upbeat market mood. Market sentiment is favorable for risky assets as investors expect United States (US) President Donald Trump’s tariff agenda will not prove as impactful as initially feared, as well as a softer US Dollar (USD).
Daily digest market movers: Aussie set to test RBA decision
- Global trade disputes have recently boosted risk-sensitive currencies, with the Australian Dollar tracking higher as the United States Dollar retreated.
- The Aussie capitalized on the Greenback’s pullback, clawing back from midweek losses and briefly reclaiming the 0.6399 region at the top of its monthly range.
- With inflation pressures in Australia trending lower, market participants anticipate a Reserve Bank of Australia (RBA) rate cut from 4.35% to 4.10% on Tuesday.
- Nonetheless, the RBA could deliver a hawkish surprise by highlighting labor-market tightness and residual inflation risks.
- In that sense, markets will closely monitor the tone of the statement as the RBA could continue being the last of the G10 central banks to cut rates.
AUD/USD technical outlook: Momentum builds above 0.6365 as pair eyes 100-day SMA
The AUD/USD pair rose to 0.6365 on Monday, notching levels unseen since December and firmly crossing its 20-day Simple Moving Average. The Relative Strength Index (RSI) is at 67, pushing into near-overbought territory with strong upside momentum, while the Moving Average Convergence Divergence (MACD) histogram prints rising green bars.
Should risk appetite remain robust and markets absorb any RBA rate decision smoothly, the Aussie could extend gains toward the 100-day Simple Moving Average near 0.6670.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
