The Australian dollar (AUD) slightly reduced its drop against the US dollar (USD) on Tuesday, following a dip to its lowest point since August 22. This drop stemmed from worries about a potential revival of the US-China trade conflict, which could impact Australia’s close trading links with China.
As of this update, AUD/USD was down roughly 0.38%, trading around 0.6491. It managed to bounce back from earlier lows near 0.6440, mainly because the dollar weakened due to the Federal Reserve’s softer stance and the increasing tensions in US-China trade.
During a talk at the National Association for Business Economics (NABE) conference, Federal Reserve Chair Jerome Powell maintained a measured perspective. He recognized that the job market has “softened quite a bit” since July, yet cautioned that inflation is “still on the rise.” Powell pointed to “quite significant downside risks” to employment but also mentioned that acting too hastily might leave the inflation challenge unaddressed.
Despite Powell’s cautious remarks, market sentiment suggests that the Fed will likely proceed with interest rate cuts in the upcoming months. Traders are forecasting a 97% likelihood of a 25 basis point cut during the meetings on October 29-30, with a similarly high expectation for another cut in December. Additionally, some Fed officials have indicated their support for further rate reductions to bolster the job market, raising hopes for a gradual easing policy through the year’s end.
Earlier, the Reserve Bank of Australia (RBA) released minutes from its September 30 meeting. The policymakers unanimously chose to keep the cash rate steady at 3.60%. They noted that inflation in services and housing could be more significant than previously anticipated for the third quarter, highlighting persistent domestic price pressures despite a slowdown in growth.
The RBA acknowledged that monetary policy “perhaps remains somewhat restrictive,” continuing to emphasize that future decisions will be based on data and approached cautiously. The bank also pointed out the rebound in housing credit and prices, indicating that past rate cuts are still influencing the economy.
Looking forward, traders will be paying attention to China’s Consumer Price Index (CPI) and Producer Price Index (PPI) data set to be released on Wednesday. Additionally, overall market sentiment is expected to hinge on developments in US-China trade relations and the Fed’s monetary policies.
