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AUD/USD erases Friday’s losses

The USD has lost ground on Monday, losing all the gains scored on Friday as investors don't expect the Fed to remain ultra-hawkish.

It looks like Friday’s superb non-farm payrolls are long forgotten, and the USD has erased all its gains, sending the AUD/USD 1% higher on Monday. As of writing, the Aussie traded near 0.6980, above Friday’s highs.

RBA to slow its rate hikes

At its most recent meeting, the Reserve Bank of Australia (RBA) increased the benchmark interest rate by 50 basis points to 1.85%. Wells Fargo analysts predict that the RBA will raise interest rates by 25 basis points in September. By the beginning of next year, they indicate that the rate will reach its pinnacle at 3.10%.

The prior references to “removal of exceptional monetary support” were omitted in the August declaration. Instead, the more formal statement “the hike in interest rates represents a further step in the normalization of monetary conditions in Australia” was used in its place. This new phrasing, which also has a little dovish bent, suggests that the RBA feels it is now a little farther down the road of monetary tightening and may not need to proceed at an accelerated pace of 50 basis points going forward.

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“We believe this language is also consistent with a more measured pace of rate hikes. Against this backdrop, we now expect the RBA to revert to a steady pace of consecutive 25 bps rate hikes at its next several meetings in September, October, November, December, and February, bringing the Cash Rate to 3.10% by early 2023.” Wells Fargo analysts concluded.

Chinese developments

In other news, the Chinese People’s Liberation Army’s Eastern Theater Command said on the social media site Weibo on Monday that it was continuing training in Taiwan’s air and seas.

Following US House Speaker Nancy Pelosi’s visit to the island, the military conducted a rare series of naval and air force maneuvers in close proximity to Taiwan.

We will sanction US House of Representative Speaker Nancy Pelosi for the Taiwan visit, the Chinese Foreign Ministry declared on Friday.

Furthermore, according to figures from China, the trade surplus increased from 97.94 billion USD in June to 101.26 billion USD in July. Exports increased by 18% annually during that time, above experts’ expectations of a 15% increase.

The latest US consumer inflation numbers, scheduled for release on Wednesday, are currently the market’s focus. The data would affect expectations for a Fed rate increase and be a significant factor in boosting short-term USD demand, which should assist in determining the next leg of a directional move for the AUD/USD pair.

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