- Australian economy shows mixed signals: positive trade balance and improving business activity suggest the RBA might delay rate cuts, supporting AUD.
- US economic data is unclear: strong growth indicators but signs of slowdown present. Fed is cautious on rate cuts due to inflation concerns.
- This uncertainty creates a complex situation for AUD/USD. RBA delay and potential US slowdown could favor AUD, but a worsening US slowdown might strengthen USD. AUD/USD likely to be volatile in the near future.
Essentially, the hope of lower interest rates in the US is weakening the USD and making the AUD a more attractive currency for investors, driving its value up. The Aussie dollar is strengthening (winning streak) against the US dollar (downward trajectory) due to two main factors:
- Potential US Interest Rate Cuts: Federal Reserve Chair Powell hinted at lowering borrowing costs (interest rates) in the US. This weakens the US dollar because investors get a lower return for holding USD.
- Improved Market Sentiment: Global stock markets, like the Australian S&P/ASX 200, are rising (record highs). This optimism is driven by the expectation of central banks, including the Fed, cutting interest rates. Lower interest rates typically stimulate borrowing and investment, boosting the stock market and economic activity. This positive sentiment spills over to the currency market, strengthening the AUD.
Source: https://www.fxstreet.com/