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Rising U.S. bond yields supported the AUD/USD, which extended losses for two consecutive days. AUD/USD fell 0.26% on Wednesday as more U.S. data is due for the rest of the week and investors turned risk-off ahead of next week’s inflation report. After the Asian market opened, AUD/USD was at 0.6577, generally flat.
AUD/USD fell on cautious market sentiment ahead of rising U.S. bond yields and key economic data.
On Tuesday, the Reserve Bank of Australia decided to keep interest rates unchanged, but made slight adjustments in its statement to mention that inflation was indeed cooling. AUD/USD remains under pressure, with the AUD down almost 0.70% over the past two days, although the RBA added that “the board has not ruled out any possible options.
Reserve Bank of Australia Governor Bullock maintained a balanced tone at his press conference. In terms of interest rate policy, Reserve Bank of Australia Governor Bullock said “we may or may not raise interest rates,” indicating that the board of directors will consider raising interest rates at this meeting.
In the United States, Federal Reserve officials continued to speak. Boston Fed President Susan Collins said she expects slowing demand to push inflation towards the Fed’s 2% target. Susan Collins added that there was a risk of cutting interest rates “too early” and said the current policy position was good and it was “moderately restrictive”.
In terms of interest rate expectations, the swaps market has largely ignored the possibility of further interest rate hikes by the Reserve Bank of Australia over the next six months, pricing in lower interest rates over the next six months.
In the United States, the Chicago Mercantile Exchange’s FedWatch Tool shows that the probability of the Federal Reserve cutting interest rates by 25 basis points in September has increased from 55% last week to 85% at press time.
