Australian Dollar rises as Greenback softens on shutdown, dovish Fed outlook

The Australian Dollar (AUD) trades on the front foot against the US Dollar (USD) on Monday, extending its recovery as the Greenback’s early strength fades. The pair rebounds toward the upper end of its recent consolidation band after swinging sharply in both directions earlier in the day.

At the time of writing, AUD/USD is hovering near 0.6617, close to the upper boundary of the 0.6580-0.6620 range that has contained price action since last week. Meanwhile, the US Dollar Index (DXY), which measures the Greenback’s performance against a basket of six major currencies, retreats after briefly rallying to a near two-week high earlier in the day, buoyed by weakness in the Euro (EUR) and the Japanese Yen (JPY) amid political jitters in Europe and Japan.

Earlier in the day, data from the TD-MI Inflation Gauge showed headline prices rising 0.4% MoM in September, reversing August’s 0.3% decline, while the annual rate accelerated to 3.0% from 2.8%. The hotter-than-expected print lent support to the Aussie, as it suggested that underlying price pressure remains sticky and could keep the Reserve Bank of Australia (RBA) cautious about delivering further rate cuts in the near term.

The broader outlook for the US Dollar remains tilted to the downside as the US government shutdown stretches into its sixth day, raising concerns over potential drag on near-term growth if the impasse persists. At the same time, markets are fully pricing in a near-certain interest rate cut by the Federal Reserve (Fed) at its meeting later this month, while bets for another reduction in December have also strengthened.

Looking ahead, traders will keep a close eye on Australia’s Westpac Consumer Confidence data for October, due on Tuesday, for fresh signals on household sentiment and domestic demand. On the US side, the key highlight will be the release of the Federal Reserve’s September Meeting Minutes on Wednesday. With the US government shutdown delaying several key economic data releases, investors will also pay close attention to remarks from several Fed officials scheduled to speak throughout the week.